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Brandish is edited by Rob Lake. Contact him on (03) 9349 8989.
Brandish is grateful to Tony Standley and the team at The Retail Alert Group for their insights into the challenges and opportunities facing retailers in 2008.
Following his visit to the US National Retail Federation Expo held in New York last month, Tony is sharing news and his impressions.
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Notes from the US NRF Expo January 2008
The annual NRF Exposition and EXPO showcases the best and sometimes worst in US retail thinking and technology.
Solutions and technology which will genuinely deliver profitable sales growth and cost reduction during 2008 were priorities for The Retail Alert Group at NRF 2008 in New York.
The focus is always to distil the best outcomes into meaningful bottom line retail deliverables for Australian and New Zealand Retailers from retailer trade conventions such as NRF 2008.
Retailing 2008 in Australia and New Zealand is a state of change coming off several years of cost of goods deflation and booming sales growth in certain retailing sectors.
Analysis of NRF 2008 outcomes is backgrounded by the thought that Australian and New Zealand retailers might be forced to consider returning to normal trading conditions with a possibility of a rise or inflation in cost of goods for particular retailing sectors and a less than the buoyant retail trading conditions experienced over the past few years.
During the NRF EXPO and our following visit to Europe and the UK we will take a read of consumer and retailer confidence recognising that although the Australian and New Zealand economy fundamentals are strong, it makes sense to assess how major economies might affect the ‘glow’ on current retail trading conditions in Australia and New Zealand; tourism for example.
Advances in Retail – China to Shelf / Rack Supply Chain
The demand to tie the shop floor to China production capabilities particularly the quality assurance, barcode / RFID standards is being challenged by conventional production and distribution processes.
The ability to tie demand to second season changes in demand is similar to the challenges being experienced by Australian and New Zealand retailers. On casual observation and conversations, we came to the view that retailers who are working closely with their lines of distribution and have moved seasonal overflow to 3PF facilities are winning the battle far better than their American counterparts.
Retail Forecasting and Budgeting System Advances
As with general distribution, forecasting and budgeting systems are struggling to tackle the new tier of China to Shelf complexity but there were advances being demonstrated but in our opinion not proven.
We would recommend that Australian and New Zealand retailers show caution when being presented with complete packages purporting to have solved the challenges of extending forecasting and budgeting systems to manage new China to Shelf opportunities.
There are solutions that can be engaged to deliver real advances in forecasting and budgeting for those retailers looking for help in evolving systems to include closed loop China to Shelf forecasting and budgeting.
Retail Space Management System Advances.
Nothing new. We looked for new solutions that would be easier for Australian and New Zealand retailers to adopt, but found none.
We would recommend that our existing solutions are considered as relevant for the average retailer; specialty retailers in particular moving to fixture, that is stand / bay / table gross profit reporting.
Call us if you need specific assistance in providing relevant return on space occupied solutions.
US Trading Observations
Best Buy is due to report monthly sales again, and investors are watching closely to see if it will show weakness, after Circuit City at the beginning of the week reported an 11.4% slide in sales at established stores for December.
Sears reported a 59% reduction in quarter profits.
Overall, US trading retailer confidence is weak for the first half of 2008.
The ramifications of tightening consumer credit despite some Fed tax crumbs makes specialty retailers in particular nervous.
The flow on effect of poor stock market performances with have the normal effect on the local Australian and New Zealand markets, the main difference this time is a tightening of consumer credit and bank interest rates which could dampen retail sales activity.
UK Trading Observations
There are reports that department store sales were down 1.5% for the Christmas quarter, and some speciality chains struggled.
Food sales rose 3%, mainly due to the rise in costs for basic foods.
HMV was a highlight with a double-digit lift in sales driven by home entertainment.
Essentials, such as gas, are to rise 15%, fuel costs are on the rise and due to floods, basic food prices are on the rise.
Retailing in the UK in 2008 in discretionary spending is expected to be tight, and may show a downturn on 2007 sales.
Conclusions
Although US Retailing is flat, the demand for new solutions / ideas from US retailers seemed as strong as ever.
Our observations on UK trading in Q1 and Q2 2008 also showed flat sales trends for early 2008.
The resilience of the US retail community and their ability to continually challenge their businesses was refreshing. Australian and New Zealand retailers would do well to copy, and to challenge their businesses with the same vigour.
The lessons we learnt from the NRF Expo 2008 we have partly covered in this summary but we are ready to share the key business drivers with those Australian and New Zealand retailers ready to challenge their 2007 performance and make those changes to continue growing bottom lines in that which could be a challenging trading 2008.
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The year of change – are you ready?
2007 was a retail year when the Australian economy was on full throttle, and Australian retailing in general was brilliant.
2008 is a year when the Australian economy could still have ‘strength’ underpinned by the mining boom and a possible positive contribution from the rural sector.
However we think it prudent not to assume that 2008 retail trading will happen with the same intensity as occurred in 2007; retail thinking needs to be balanced against the reality of a possible downturn in the US economy; tighter international and local credit; possible lift in interest rates and some inflation in cost of goods out of the East.
Oil prices are an unknown, but plan for some increases in local and international freight costs.
What follows are some items for consideration and prioritisation which we hope you find helpful and useful in your New Year deliberations, when planning your 2008 strategies.
Maybe 2008 is a year of change or review for your organisation.
A number of proven Australian retail formats have been fortunate to enjoy a number of years of strong trading with easy margin increases driven out of the East but actually masking a fundamental decline market relativity and store efficiency.
Moving into a new year it could be healthy to ask the question;
Is your current retail format and market offer capable of weathering a return to normal retail trading conditions - or is it time to make 2008 the year of change or review for your organisation?
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Your succession plan lives here
When Wesfarmers acquired Coles, Bunnings MD John Gillam appointed four key Bunnings people to senior roles at Officeworks.
Of the four, two were long standing Bunnings people, originally from McEwans.
Orex placed the other two (GM Merchandise & Marketing and GM Retail Operations) at Bunnings.
They are among the hundreds of leaders who Orex has placed at Bunnings during their growth from 5 stores to $5bn.
Orex has a long record of placing high potential managers.
You too can make the 68,000 retail leaders in the Orex databank part of your succession planning.
We are doing it for Wesfamers and Bunnings – and we can do it for you. Call Rob Lake or Christine Sturgess on 9349 8989 to learn how.
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Consumer confidence - changes and effects
In 2008, the fickle nature of consumer sentiment needs to be watched carefully on a state by state basis. Conditions range from high boom to close to negative; new site locations need to be carefully chosen; larger states such as NSW and Victoria in particular need to be watched.
Consumer confidence will be challenged in 2008; the psychology of consumer confidence will be challenged in the area of discretionary spend as opposed to essentials spend.
Retailers who are tied to middle and low demographic markets need to be aware of the ‘buying high’ middle to low market consumers have been on. In our view, these categories of consumers are the most vulnerable to changes in consumer confidence.
Home entertainment will continue to soak up discretionary spend during 2008.
Food and fuel prices a growing concern to consuming families.
Retailers are aware that any major further upward movement in interest rates could be the lever in a down turn in consumer buying confidence.
We recommend that separate Sales Targets be set for each State to allow for correct distribution of product / stock against targeted sales increases taking into account the market demographics your organisation services.
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Main retail categories growing above the CPI
- Home Entertainment
- Fresh Specialist Food
- Brand Fashion and Footwear
Main retail categories growing slower than or equal to the CPI
- Mid Fashion - Women’s and Men’s
- Jewellery
- Conventional Music Retailers
- Gift Stores
As previously indicated, set separate state based sales targets based on category trends noticed during late 2007.
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Australian retailers have enjoyed boom times with higher margins out of the East.
Maybe the easy growth margin times are finished or slowing and the time has come to go back to the basics of making profits grow through concentrating on delivering more sales / profit out of existing space; might be the time to be ruthless with non paying space / fixtures?
It could be useful to consider going back to basics and questioning the actual profit each shelf / fixture / bay / stand is earning in an average store.
Retailing Rule 1 says that a retail store is made up of parts (shelves / fixtures / bays / stands); each one has to pay dependant on prime to secondary location.
Could it be in the good times, with growth being easy buyers in particular have stopped valuing the space occupied by their product(s) / ranges.
It maybe useful to reinforce the need for buyers to be accountable for space occupied.
It also maybe useful to challenge the use of hero lines, their placement in prime locations and the ability to guarantee 100% stock coverage in all locations at all times to maximise sales.
Sometimes stores are forced to downsize or close due to a fixture formula mix that, although previously successful, is now failing.
It is rarely high rents that close stores; it is often the inability of the retailer to challenge the productivity of the inventory of shelves / fixtures / bays / stands which make up the store under stress.
The real world says that occupancy costs are going to continue to rise probably past inflation.
We recommend that retailers re-visit the returns being achieved out of shelves / fixtures / bays / stands occupied and have a forensic evaluation of fixtures under management to avoid downsizing of stores or the possible closure of stores during 2008.
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The Australian Centre for Retail Studies’ highly anticipated Global Retail Insights (GRI) seminar is a must for busy retail executives who want to get up to speed quickly with the latest international retail trends, and understand the potential impacts and opportunities for Australian retailing. This 1/2-day seminar will be held in
Melbourne March 4
Sydney March 5
Brisbane March 6
Michael Morrison (Lecturer with Monash University’s Department of Marketing), Google and FutureBrand will be some of the key presenters at this year’s GRI seminars.
If you would like further information or are interested in registering, please contact the ACRS on 03 9903 2455 or email acrs@buseco.monash.edu.au.
Alternatively, you may like to visit their website.
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US sub-prime issues have the potential to tighten Australian consumer credit.
The possible re-valuation of the YUAN could increase import costs.
We recommend that in assessing Gross Margins for 2008, a weekly comparative balancing trend assessment is obtained covering the AU$, US$, Yuan and Euro, allowing for possible changes in hedging buying decisions.
We recommend that retailers are very careful in setting and monitoring sales and margin targets where the retailer is exposed to occupancy lease costs with CPI + 1-2% annual increases.
Experienced retailers clearly understand the reduction in units sold when selling prices move from a price bracket to a higher price bracket.
For retailers who have never experienced real inflation in the cost of goods some re-aligned in quantity buying might be necessary particularly on hero and volume ranges.
The effect of a 1% reduction in margin created by currency exchange deterioration coupled with a CPI + 1-2% annual lease increases can have a substantially negative effect on retailers EBIT especially those currently experiencing general annual rent bracket increases above CPI and have a track record 3-5% returns against sales.
Even those retailers, whose returns are above 10% and still have a number of sites with general annual rent bracket increases above CPI, would be wise to extrapolate the effect of a 1% reducing in gross margin.
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Major Brand, Big Business, Rewarding Opportunity
- Fulfilling Sales Management position
- Inspire others, take responsibility and drive sales
- Future Growth and Opportunities
A great opportunity to work with and support the growth of a major player in the building industry.
This strong brand, Big Box store requires an experienced Trade Manager to develop and maintain their trade business.
You will be responsible for leading and inspiring your team to increase performance through maximising sales opportunities and delivering excellent customer service.
Through the development and coaching of your team, as well as strong leadership and planning focus, you will drive sales, create efficiencies and increase productivity.
Reporting directly to the Store Manager and working closely with the Retail Manager, you will thrive on delivering a service tailored to each customer's needs to ensure sustained repeat business.
Passion, commitment and motivating your team to achieve excellent results, are essential requirements for this role.
Apply now, or if further information is required, please call Daniel Ross on 03 9349 8989.
Also worth a look:
- Two marketing management roles for a major building trade chain; one conceptual, the other more implementational. Melbourne. Call Rob Lake on 03 9349 8989
- Senior sales roles with a Melbourne retailer of luxury and prestige vehicles that is taking the market by storm with an innovative approach. If you are old school, smoker, jaded and stuck in the industry for thirty years, call customers maaaaate to their face, but “the head” behind their back. - not interested in you - GO AWAY. But if you are not, call Rob Lake on 03 9349 8989
- State management. Can you manage 50 - 100 large format stores with turnover on the tens of millions through a team of Area Managers? Call Rob Lake on 03 9349 8989
- Multi faceted retail projects - fitouts, concepts and rollouts. Great job and environment. Would suit your architectural or building qualifications and your ability to keep lots of balls in the air. Melbourne based, with national and international work. Call Rob Lake 03 9349 8989
- Human Resources Manager Victoria. Icon brand. Suit generalist with service industry background. Call Christine Sturgess on 03 9349 8989
And here are some other retail management opportunities.
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Internal influences on retail 2008
- New Federal government
- Rural weather conditions and the drought
- Wesfarmers revitalisation of Coles
- Continual aggressive competition between Myer and David Jones
- Growth in on-line sales
- Possible arrival of Costco.
A new Government will need some thought particularly on labour and employment structures.
It could be the new Government will be more interventionist in the areas of perceived market domination by larger retailers, suppliers and some property owners.
We suggest careful watch takes place on the period leading up to the next budget to get an understanding how to plan retail activity for Summer / Christmas 2008 and beyond.
For specialty retailers, expect to see the marketing competition between the major retailers Woolworths, Coles, Big W, Target and Kmart ramped up. Specialty retailers will need to watch major retailer discounting carefully.
Up to now, speciality retailers have had higher and higher margins to ‘manage the blowtorch’ of major retailer discounting; with a possible lift on cost of goods out of the East, specialty retailers need to be watchful and careful how they continue to match the inevitable major store discounting programmes.
A hopeful bright spot could be a lift in sales in rural and regional areas coming out of drought. Winter 2008 and early Spring 2008 rain could result in a lift in country consumer confidence leading into Christmas 2008.
Any signs of lift in country consumer confidence reflected in good spring and Fathers Day sales trends need to be reflected in stock distribution planning for Christmas 2008.
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We only look at technology trends that have a promise of genuinely adding profits to retailers’ bottom lines.
The good news is that there are a number of serious contenders for consideration in 2008.
Item Level RFID
2008 - the year Australia adopts RFID. Item level RFID promises double digit sales increases; over 40% reduction in stock handling; over 90% stock accuracy and a reduction in shrinkage.
Retailers who remember the 1988 year of barcodes and EDI and the enormous benefits barcodes and EDI gave to Australian retailers should look at 2008 with the same attitude to Item Level RFID.
We strongly recommend that Item Level RFID be placed at the top of your technical change and evaluation list for 2008.
It might be useful for your team to regularly monitor RFID updates and progress by subscribing to the RFID Journal.
Networked shop floor, reserve, DC surveillance becoming cost effective
The ability to track shrinkage issues on shop floors, reserves and DCs using network surveillance is becoming acceptable even taking into account privacy protection.
With more retailers forced to have higher levels of casualisation loyalty to the business has diminished.
We recommend that retailers take note of advancements in shrinkage surveillance and adopt those options that fit the culture of the business.
Networked shop floor training becoming cost effective
The cost of continually training retail shop floor team members using conventional one on one training is prohibitive and no longer affordable.
The growing casualisation of the retail shop floor, extended trading hours and a tight labour market demands a re-think on how to deliver top quality shop floor training using conventional, established store networks.
We recommend that retailers take advantage of the normal store networks and drive controlled and audited team training via on-line sessions. We also recommend that retailers eliminate hard copy manuals and replace them with on-line help manuals.
Networked LCD or plasma screen window and internal marketing becoming cost effective
The cost of LCD and plasma screens have plummeted to a point that Australian retailers can look seriously at an all store, demographically uniquely targeted to customer demand set of promotions.
We recommend that retailers look at the effect current television, catalogues, magazines, radio, newspapers and on-line advertising are delivering to the bottom line, and investigate the benefit of targeting customers region by region, demographic group by demographic group.
It is all about leveraging unique targeted discretionary spend sales from the thousands of customers who walk past retailers stores every day.
The question is; is current marketing / advertising working in 2008; is it time to look at alternatives that target real customer demand on a store-by-store basis?
Digital kiosks becoming cost effective for entertainment, music, DVDs, TV programs, books and games
In-store on-line retailing to support store sales becoming more popular.
Customer Special Order Kiosks becoming cost effective for some retail categories; large SKU ranges limited space.
We recommend the consideration of the placement of Digital Entertainment Kiosks outside retail premises in malls and complimentary retailers.
Photography and music have led to introduction of new revenue streams to the Australian shop floor. Now is the time to consider the possibility of new revenue streams being delivered to digital store and or mall based kiosks during 2008.
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A rising CPI could force further interest rate rises dampening consumer spending; a 0.25% interest rate rise in 2008 is the same as a full 1% interest rate rise in the ‘80’s.
The level of credit card debt could cause a dampening effect on consumer spending.
Currency relationships with Yuan, US$ and Euro may have implications on costs of imports.
Oil Prices.
Australian retailers have been used to years of deflation in cost of goods; as already indicated we recommend that retailers take care in allowing for a possible increase in the price of goods during 2008 especially out of China.
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Volatile costs of fuel for consumer could lower discretionary spend on retail essentials.
Volatile fuel costs could further increase cost of goods particularly food essentials.
Transport and shipping companies are no longer capable of absorbing the cost of fuel.
Any further rise in the cost of fuel will affect the price of goods from the farm gate and the cost of goods into store from local and international logistics and freight organisations.
Be conscious of insidious small freight charges; in themselves innocuous but in total a substantial effect on cost of goods into store.
The cost of fuel is becoming a substantial impediment to travel for a growing number of Australian working families.
The number of shopping visits could be challenged; any impact of fuel costs on the price of food on shelf a cut in the amount of discretionary spend available for other purchases.
We recommend that retailers look at their supply chain loop from ‘China to Shelf’.
We recommend that retailers question the possibility of having product delivered direct to port and consider the benefits of having non-owned distribution centres strategically placed around the Australian seaboard.
There is no doubt that the cost of transport of goods is becoming a major concern for Australian retailers with large numbers of outlets in all States.
It is our strong recommendation that retailers undertake a thorough investigation of current costs and look seriously at alternative stock distribution options in 2008.
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Supply chain and transport challenges
We have already covered in some detail the need for Australian retailers to look carefully at fuel and transport costs and addressed the possibility of Item Level RFID delivering substantial benefits to Australian retailers.
There are a number of proven Item Level RFID pilots and live installations for us to recommend that Australian retailers look to 2008 to take a close look at how Item Level RFID could benefit their bottom lines.
2008 should be the year when Australia starts to adopts Item Level RFID as part of its Retail Supply Chain structure.
Item Level RFID has proven to deliver double-digit sales increases; over 40% reduction in stock handling; over 90% stock accuracy; reduction in shrinkage.
Coupling Item Level RFID source marking into China to shelf vertical supply chain integration opportunities should be of consideration
The Retail Alert Group recommends looking at item level RFID early in 2008, mapping out a strategy for its early adoption. Correctly implemented, item level RFID has the potential to counter balance the inevitable increase in the cost of getting stock onto the shelf or rack.
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Increased trading hours; a tight labour market and a progressive loss of long-term shop floor team members are issues for many retailers, particularly specialty retailers.
The trend of higher level of casualisation of the Australian retail shop floor is becoming a training challenge especially when selling and dealing with retail product about which an element of product knowledge is essential.
Consideration should be given to providing product advice and information by easy to access information kiosks or service points to assist casuals in particular to garner the necessary information to satisfy customer enquiries quickly and efficiently.
It could be necessary for some retailers to consider ‘grey power’, the large number of early retired in the community to cover the short supply of experienced retail team members.
Retailers such as Bunnings have had great success in leveraging a large number of loyal, experienced and dedicated in-store team members from ‘Grey Power’ sources.
In our technology notes, we stated that the cost of continually training retail shop floor team members using conventional one on one training is becoming prohibitive.
We recommend that retailers take advantage of the normal store networks and drive controlled and audited team training via on-line sessions.
We also recommend that retailers eliminate hard copy manuals and replace them with on-line help manuals for shop floor teams.
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Speed to market, profitability and maintaining a competitive edge is a constant challenge for Buyers and Merchandisers in the dynamic retail market. As well as introducing current trends. The comprehensive Strategic Buying program will present additional concepts and strategic platforms to assist Buyers and Merchandisers to successfully manage their given portfolios in the multi faceted fast moving retail landscape.
Previously named Advanced Retail Buying, this 2-day program will improve the buying and strategic decision making expertise of senior level Merchandisers and Buyers operating in the competitive retail sector. The program will be held in Melbourne 12 & 13 March 2008 and 12 & 13 August 2008.
If you would like further information or are interested in registering individuals from within your organisation, please contact the ACRS on 03 9903 2455 or acrs@buseco.monash.edu.au.
Alternatively, you may like to visit their website.
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More casualisation of labour; higher personnel turnover; loss of shop floor experience could lead to higher internal / external / administration shrinkage.
Item Level RFID is one new way of reducing shrinkage, our view however that without permanent or hand held Item Level RFID stock accuracy being available, then weekly cycle counts and a STL (Stop the Leaks) transaction check programme is essential for all retailers to consider.
Security surveillance another.
Our recommendation is that a review takes place of current shrinkage audit programmes take place early in 2008 taking into account the further casualisation of the Australian retail labour market and the associated risks of lower shop floor team loyalty levels.
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As already noted, the questions are:
Is current marketing / advertising working in 2008?
Is it time to look at alternatives that target real customer demand on a store-by-store basis?
- Costs and benefits of free to air television advertising are under challenge.
- Costs and Benefits of catalogues are under challenge.
- Is eBay starting to have an effect on your business?
- In-store LCD Panels differentiating chain retailers’ offers by demographic demand
- On-line advertising; is it working for you?
- Revisiting shopping centre marketing – back to basics
The first five points are directly in the hands of the retailer.
The last point is a matter that should be addressed by shopping centre owners.
Australian shopping centres had a dream run in generating rental revenue from strong retail sales up to the end of 2007. In 2008, it might be prudent to question current shopping centre marketing practices in a ‘normal’ retail environment.
There are marketing options outside the normal rounds of television advertising, catalogues, newsprint, magazines and on-line advertising for both the retailer and shopping centre owner that should be considered. Direct screens (LCD and plasma) is one option, RFID loyalty cards another.
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We would like to thank you for the time taken to read our thoughts; we hope they make commercial sense to your business.
It is hoped that you find our recommendations for consideration worthy of some action.
Our team has members with individually over twenty year’s retail experience.
When required we are here to help you have a great, profitable 2008.
Should there be matters covered where we may deliver specific solutions to your business contact us for information on our Project 6 approach
For further general information on some of the matters covered in this note see our retail information Website http://www.retailalert.com.au
Again a great Retail Trading and Selling 2008.
Tony Standley
Principal
The RETAiL Alert Group (Australia)
e-mail info@adsass.com.au
Mobile +61 (0)41 924 0497
Website http://www.retailalert.com.au
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