How Do You Recover Sales and Profitability Now Stores Are Re Opening

11th August 2020

Brian Hume

Hello:

I’m Brian Hume, Managing Director of Martec International.  I want to share Martec’s input on how retailers and consumer goods manufacturers can recover market share and restore profitability, now that retail stores are re-opening in many countries.  But first some background. 

During the lockdown, shoppers got used to ordering online and not being able to visit stores, except for essentials like food and medicines.  Those that did visit stores did not find the experience pleasant.  They were prepared to queue for essentials, to shop early to find key items before other shoppers emptied the shelves and to buy much else of what they needed online. Omni-channel retailers and online pure plays saw significant increases in their online sales.  Some of these sales will go back to stores eventually, but a lot won’t.

 

Depending on country, many stores have re-opened or are about to.  Stringent safety measures are being implemented to make the stores safe for shoppers, but sadly these are also making the shopping experience a lot less pleasant than it used to be.  So how do you now manage re-opening, giving your business the best possible chance of recovering profitably?

 

To recover at all, customers have to leave the store having fulfilled the important parts of their shopping mission.  Only by achieving this, will customers believe that the rest of the experience is worth tolerating.  So this is the first aspect to concentrate on.  But how do you achieve it?

 

The answer is to offer excellent customer service which is more rewarding than the barriers posed by the current shopping experience.  The consumer changed during lockdown and their expectations of customer service changed too.  But the biggest component of a complete customer service package is being in stock of what the customer wants.  At this stage of recovery, customers are mostly focused on basics or essentials.  They are generally spending less and saving more.

 

Going into lockdown, many retailers cancelled all the purchase orders they could, since they knew they were about to experience a punishing cashflow situation.  If shops are 80% of your sales (and were most often more), then closure of shops meant 80% of cashflow disappearing.  This was offset by the growth in online sales, so in reality the cashflow drop might have been 60%-70%, say.  Either way it hurt.

 

At the point of closure most stores had plenty of stock, some of it year round items or continuity merchandise and some if it early spring seasonal merchandise.  From a seasonal perspective, retailers are now coming to the end of the summer season.  Round about now, retailers should be starting to receive early autumn merchandise and only individual companies know how much they could afford to order with limited cash to pay bills.  Some will have fared better than others.

 

Fortunately, quite a lot of the stock on store floors when they closed will have been basic items, which sell year round.  So step one is to make sure you offer the best service level you can for the basics, which is most of what normal customers buy, especially now.  Retailers know that they can’t be in stock of everything all the time and the customers understand that too.  However, retailers need to be in stock of all the basics all the time, as far as they possibly can.  This means making the stock cover as deep as you sensibly can now, given your specific situation.

 

If you have removed some fixtures to make wider aisles for customer safety reasons, this will help, as long as you prioritise the stock on the floor to the most important lines.  (But see the section on newness later).

 

If some of your stores will never open, or some stores are delayed in opening because their local core customers are working from home, not commuting into city centres, move that stock to where it will do the most good.  Basics can improve the stock cover in stores that are now trading and some seasonal items can go back to the e-commerce warehouses or distribution centres to provide extra cover for online sales.  There will be a cost to the transfers, but it will save some cashflow pressure in the stores that can use the merchandise and the cost of transfers will very likely be a lot less than the cost of lost sales avoided.

 

Chief Financial Officers will be watching the cash position continuously, looking at how they can raise money from shareholders or banks, cut costs to reduce non-essential cashflow and turn existing inventory into cash as quickly as possible.

 

 

There will be a temptation to mark everything down and looking around stores, we can see many 50% and 60% off promotions.  Too many 50%/60% off signs create the impression that you may be going out of business.  They may also do serious damage to the brand.  If the situation is so tight that you have do 60% or 70% off, consider whether some of those stores you don‘t really need right now, could become outlet stores, where you can centralise a lot of heavily marked down stock, without doing the same damage to the brand.  In a perfect world you would pick stores remote from the rest of the chain.  Equally, can you move some of that stock on marketplaces such as eBay, without risking the same degree of brand damage?

 

While it may be tempting, it is almost always a mistake to take end of season lines back to the warehouse to store until the start of the corresponding season in six months’ time.  Just not a good option.

 

If you let customers try items on in store, and return items to store and then quarantine them for two or three days, remember that for many apparel items, there will only be one of each SKU in stock in an individual store.  While that item is in quarantine, the store is effectively out of stock.  A response like “I’ve got your size in stock, can you come back in 3 days’ time to try it on” is unlikely to be attractive.  If you can allocate more units of the most popular sizes this may be helpful.  On the other hand, if you don’t get the traffic, it may not be necessary.

 

The most important word in retail is NEW.  In normal times, the merchandising teams will schedule receipts so that there is something new to put in windows or prominent positions in store and highlight it with store signage.  If cash is tight and new ness is limited, change windows every two weeks, rotating actual or anticipated best sellers from existing stock and vary the presentation by use of different accessories, etc, to create by different combinations of existing items.  This is a crucial time for creative display.  Then look at budgets and see if you can stretch to some limited purchasing to support some newness in stores. 

 

If you’re selling branded products, the manufacturers and brands are just as anxious as you to recover sales and profitability.  Where you can’t prioritise cash for stock you are confidant of selling on a reasonable timeframe, talk to your suppliers about some positive support via sale or return deals and consignment stock, where you pay for it when you sell it.

 

Early on in your recovery, it is better to be overstocked on basics/essentials, so you can encourage shoppers to keep coming in (within reason) and then run stocks down to a more normal level as customer confidence returns and traffic improves.  One way to think about this is to follow the kind of strategy that many retailers use when opening a new store.  They often overstock it for the first 6 months of trading (and overstaff too) and run levels down to normal as the store gets established.

 

If you haven’t opened all your stores and your ability to re-stock is severely cash constrained, evaluate how many you really want to open, so you can use the stock on the floor in the closed stores to help you through.

 

Then, while store traffic and consumer confidence is slowly building, and more consumers decide to try shops again, implement the systems that will allow you to maintain optimum stocks of basics without over investment, so that you can build a reputation and sustain it in the longer term.  As you progress, exchange excessively high stock levels for world class systems support.  We will address this topic more in a future article.


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