By Frank Schools, www.tatumllc.com
For many retailers nationwide, 2009 will be remembered as one of the worst in recent history. In fact, the recession shattered consumer confidence and subsequently retail sales at nearly every level.
Shuttered storefronts and liquidation sales have also become extremely familiar sights with many retailers responding with even more cost cutting. But at this point, is there really any more cost cutting to be done?
The answer is no; 2010 must be all about customers. This includes regaining their trust, better understanding their needs and growing sales through loyalty, hard work and better service.
Cause for optimism
Has the recession truly hit bottom? Has the rebound really begun? The National Retail Federation has forecasted a moderate 2.5% growth rate for U.S. retail sales in 2010. Also on the positive side, the Commerce Department expects the GDP to grow nearly 3% in 2010.
However, while these numbers do show promise, the predictions for the near future are still modest at best. In relation, the Commerce Department has reported better-than-expected January sales -- but those results are up by only .5%. So, even though retailers are starting the year mildly optimistic, most are realistic enough to realize true gains will not be made until the job and housing markets significantly rebound.
When the cutting is done
Most retailers will attest to cutting costs to the bare bone to stay afloat. Any more related to the reduction of inventories as well as the elimination of additional support staff would only serve to further degrade the customer experience. Growth, and essentially profits, must then come from the building of new and the reinforcement of old customer relationships.
First and foremost, this means better understanding how customer demographics and needs have changed over the past few years. It also means paying closer attention to what customers want in terms of selection, price point and value. After all, keep in mind that customers (particularly middle-income customers) are still not free-spending, so thoroughly understanding their perception of value is critical.
Connecting with the customer also means closely examining present and past relationships. Some retailers have even had to face up to the fact that customers, even long-time loyalists, now want something different. This should signal a call to action with retailers working harder to meet the customer’s latest perception of value. It is the only way to reinforce same-store sales and forge a new dynamics that secure repeat sales.
Maintaining a lean organization
For the foreseeable future, organizations in every industry will have to remain focused on efficiency. That means remaining flexible, while applying best practices in terms of corporate office productivity and cash management. Essentially, that also entails enhancing productivity in the less likely places, while ensuring additional cuts, if any, are made without further disturbing the customer base.
1. Revisiting relationships
When every penny counts, everything becomes negotiable. As you search for ways to reduce operating expenses, carefully review current relationships with landlords, vendors, insurance providers and suppliers to identify areas for improvement or renegotiation. You may be surprised to find that many of today’s contracts are no longer set in stone. Though only a small gain may be realized through each renegotiated contract, several contracts can combine to provide multiple sources of savings.
However, be aware that contracts, especially fixed ones, can be tricky. So, an overly-aggressive approach can produce damaged relationships. As a result, you really need to do your homework on pricing models and then apply positive, open communication skills that encourage cooperation and mutual rewards.
In addition, the other benefit of this approach is a fresh perspective. Vendors and suppliers alike should be used to shed new light on a marketplace that includes the wants, desires and expectations of key customer segments.
2. Implementing quick-win efficiency
During down times, successful businesses do more than slash IT budgets. They look for “quick win” workflow efficiencies that require minimal capital expenditures or resources. Beyond that, the search also often extends to innovations that help reduce costs, create new efficiencies and capitalize on opportunities in a reinvigorated market.
As a result, all companies operating in a down market should follow this example by reviewing business priorities and processes and then implementing enhancements from the top down. This also means carefully determining the true value of certain processes as well as their underlying importance to the bottom line. Unfortunately, such diligence will always reveal areas that cost more than they make.
3. Outsourcing non-core functions
As you review internal processes, you may also find a significant number of non-core functions that can be outsourced without affecting bottom lines. Potential candidates normally include banking, accounts payable, payroll, audit and in-house gift-card management functions.
In addition, always strategically approach the selection of providers. Be sure to identify outsourcing goals up front. Also consider the risks, benefits and availability of each vendor. Never enter agreements without clearly outlining processes and goals.
4. Exploring mergers and aquisitions
Despite the shaky economic environment, now may be a good time to consider a strategy for growth. That includes finding opportunities to acquire weaker chains that can help you rapidly gain market share and spread expenses over a larger base.
For better or worse, depending on your point of view or place in the market, there will likely be many more acquisitions over the next several years. In many cases, some retailers have either been forced or are being forced, either through covenant violations or through expiring agreements, to convert unsecured credit lines into asset-based lending facilities. Consequently, some retailers may even be bought through bankruptcy court or acquired at a bargain price.
Nevertheless, as you plan for 2010 and beyond it is also extremely important to keep a realistic outlook. Even though the retail environment may remain challenging, it is starting to show positive gains. Subsequently, never forget the importance of staying connected with customers, to grow sales. It is the only sure-fire and tested way to improve your bottom line.
Frank Schools works out of the Southern California practice of Tatum, the nation’s largest executive services firm (www.tatumllc.com). With over 20 years experience in both hard-line and soft line retail companies including the 99 Cents Only stores, Pacific Sunwear of California and MacFrugal’s Bargains, Schools is particularly skilled with multi-unit, multi-state operations in high growth situations.