Tips for retailers

The year ahead: 3 Ways to trade better

Feb/ Mar 2009

(1) Improve productivity

Worldwide, companies consider training to be integral to improving productivity and are set to invest heavily in training and development.

The above were some of the key findings in the 8th Global Productivity survey by Proudfoot Consulting, which included more than 1 250 comprehensive interviews with senior officials in companies with annual turnover exceeding $100-m in twelve countries and six industries.

It found that in the retail sector:

» Managers think their companies could potentially increase productivity by 11.9% over the next two years;
» Retail managers surveyed cited high staff turnover (25%) and low employee motivation and morale (24%) as the top two barriers to improved productivity;
» Technology is seen as a key to improved productivity in the retail sector. 64% of retail managers surveyed reported their companies plan to drive productivity improvements over the next 12 months by increasing capital expenditures on IT and communications technology;
» Workers and managers in the retail sector receive less training days than the global norm and almost half (46%) see this level as insufficient;
» Managers currently spend 46.5% of their time on administrative tasks, the highest level of any sector studied and equivalent to 2.3 days per work week.

The survey found that productivity is increasing in SA: 23% of the SA managers surveyed reported that their companies experienced productivity increases of more than 15% in 2007, classifying them as “High Performers.” This is 4th highest of all countries surveyed.

Yet, SA managers surveyed think their companies could improve their productivity by an average of 16.1% over the next two years, over two points above the global norm. The same managers, however, believe the actual productivity gains realised will only be 10.5%, leaving almost 35% of the potential productivity gains untapped.

Main barriers to productivity identified by SA respondents are:

» Staff shortages and insufficient labour pools (37%)
» Legislative issues (33%)
» Quality of supervisors (31%)
» General work force unable (23%) and unmotivated (20%) to adopt change programmes
» Internal communication (20%)
» High staff turnover and low employee morale

SA compared to the rest of world:

» #1 world: SA managers planning to embrace a performance methodology (75%)
» #1 world: SA quality of supervisors is key barrier to productivity
» #1 world (10 points above norm): SA companies plan to invest in work force training (91%)
» #1 world: SA workers receive most days of training (16 days on average)
» #2 world: SA companies plan to invest in programs to boost staff morale (71%)
» #4th world: 23% SA managers increase productivity more 15%
» 2 points above norm: SA managers believe can improve productivity by 16%
» Lowest (10 points below norm): SA managers saying it is easy to communicate to the work force (67%)
» Lowest (17 points below norm): Companies formally and regularly assess the effectiveness of staff training (46%).

(2) Know your customers

Retailers wanting to improve sales need to identify and find ways to attract those 2.5% pivotal point consumers responsible for 80% of sales to their stores.

The US study, Discovering the Pivotal Point Consumer, by the Pointer Media Network for the Chief Marketing Officer (CMO) Council tracked the purchasing behaviour of nearly 54-m American shoppers over a 12-month period.

They found that only 25 out of the more than 1 300 product brands analysed relied on more than 10% of shoppers to drive 80% of sales and that increased brand fragmentation, including line extensions from existing flagship brand names, has reduced customer concentrations, rather than bolster brand affinity.

The data shows that you do not necessarily have to win over a large consumer base to launch a new product — the trick is to find the key customers, and direct your marketing at them.

Maybe they are amongst the emerging consumer markets.

» Consumers are staying healthier and active for much longer — 60-65 year olds might be old enough to retire, but they are still young enough to run, cycle, climb, row, play squash, go to the gym etc. Plus, they have the time and money to engage in these activities. According to the Unilever Institute of Strategic Marketing SA consumers aged 40 and more account for 20% consumer spend (R300-bn disposable income). These consumers do not enjoy being bombarded by loud music, want good lighting to see what they buy and expect shop assistants to be able to answer questions about products. Their shopping needs are quite different to those of the teenage mall crawlers;
» Worldwide studies show that consumers want to shop with a conscience (see p60) because they care if the retailer or brand they support has eco- and human-friendly values. According to the international trend research company NPD the number of people interested in buying environmentally sound goods have grown by 300% over the past five years;
» Women are growing in importance as consumers in the sporting goods market and women-specific stores is a trend of the future. Research has shown that especially when buying sports clothes, women do not like being assisted by male shop assistants and they often feel intimidated shopping in stores where “male sport” products like rugby dominate;
» The black middle class is growing rapidly — whether they are called Black Diamonds (Unilever Institute study) or Onyx Market (TGI SA database), their number grew to 3.7-m in 2008 (from 2-m in 2004) and according to the Unilever Institute, their annual spending power is R185-bn. A market study by TGI shows that there are many reasons why this consumer group is one of the most important consumer markets: at an average age of 32, they are eight years younger than the average white consumer, they outnumber whites in alcohol consumption, Internet usage, and owning a generator. Motor vehicle ownership, sport participation and recreational activities, however, are still far below that of whites.

(3) Cater for your top 2.5% shoppers

In the first half of the 21st century retailing was customer-centred: a retailer knew the names of his customers and he stocked what they needed, says Sarnewitz. There was a personal relationship between retailer and customer, the retailer recognised the customer and his preferences, and because he understood his customer’s needs, he could offer relevant value (still the core strengths of most of the SA industry’s thousands of independent stores).

With the growth of chain store merchandising, the owners and merchandisers of large retail chains no longer get to meet their customers, and can therefore no longer provide products to cater for their specific tastes — instead, a single product assortment at one price point is selected for every store in the chain, with only a few deviations allowed. The salesperson, who might, or might not, get to know the customers and their demands, has very little influence on purchasing decisions.

But, worldwide, consumers are indicating that they no longer want the sameness offered by the mass market, says Sarnewitz. They yearn for the customer-centred product offering and service of the small store… which chains can offer them through the use of the latest data collection technology. For example, it can help the mass retailer to:

» Understand his customers: What do they buy? How do they like to buy? Who buys what? Instead of classifying a store per sales volume and the demographics of the area, stores should be “clustered” according to individual purchasing patterns based on accurate basket analysis — and items preferred by the locals allocated more shelf space, suggests Sarnewitz;
» Offer relevant value: tailor the product assortments in the store to satisfy local customer demand by analysing individual baskets, and have localised pricing. For example, analysis of sales in a US store indicated that they should discontinue a certain kind of bread that was a very mediocre seller — but when individual customer baskets were analysed, it was found that the bread was bought by the store’s most regular and most profitable customers … and they all bought this particular bread every time they visited the store. Only through basket analysis did the store owner realise that the particular bread was a destinational item for his most valued customers;
» Personalize marketing: interact with the consumer via the internet — alert them to specials on items they like to buy, or the arrival of new ranges from a brand they bought in the past;
» Interact with customers in real-time — for example, via mobile phone, or offer customers computer access in-store to view additional product information, or promotional information;
» Maintain accurate data and information about products and customers — for example, that John Smith is the same customer as JP Smith, and also keep track of store supplies so that you don’t miss out on potential sales when you run out of stock of an item that unexpectedly sells well.

Customer data analysis have been used by successful retailers to obtain:

» Analytics to analyse the key performance indicators of your stores as well as competitors in order to retain customers. The Tesco retail chain was one of the pioneers to tailor their product assortment to their customers’ needs. Even an independent retailer, who conducts thousands of transactions per month, will benefit from automated data collection to record and analyse sales, which will help him when making stock purchases or want to change store displays, he says.
» Kohl, the US department store group with more than 900 stores and an annual turnover of $16-bn, for example, use technology to understand the needs of each of their individual stores, says Sarnevitz. This not only enables them to forecast and plan merchandise accurately, based on changing sales profiles per store, but they can also plan markdowns appropriate for the product levels in each individual store.
» Kroger, the massive US grocery chain with 2 400 stores and annual turnover of $70-bn, use an analysis of customers’ baskets to plan specific product promotions in each store.