Three Ways to Fight Back Against Rising Costs
By Chris Horacek, VP, BravoSolution, the supply management company
American shoppers are in a sea of sticker shock. Rising retail prices are dominating store shelves and in turn, are hurting consumers’ wallets. Food prices have been hit especially hard — skyrocketing by more than 4% in February alone, which represents the biggest jump in more than two years.
With consumer discretionary incomes shrinking, retailers can’t pass all these costs along to their customers. However, if retailers aren’t passing along the costs, how can they protect their slimmer-than-ever profit margins?
The answer lies in the supply chains of the most successful retailers that have found new ways to cut costs and as a result, keep customers coming back. Here are three strategies that are separating retail leaders from the laggards.
1. Source Smarter
All too often, retail supply chains are littered with opportunities to slash costs. Supply management teams only need to step back and think more strategically about how they interact and select suppliers, and spend their money.
For example, retail parent companies that have multiple store brands often have multiple contracts, at varying prices, for the same product – even if they are all using the same supplier. Similarly, one supplier may be used across multiple product categories and corporate divisions, but yet again, a retailer may have multiple contracts with that supplier.
These discrepancies and variances can cost retailers millions of dollars every quarter. To solve the problem, retail procurement and supply management teams must start by getting better visibility into their total spending across the supply chain – drilling into specific categories, product lines, departments and corporate brands.
From there, retailers can identify new ways to consolidate suppliers and overall spending, ensure consistent pricing and benefit from volume-based purchasing. The result: on average retailers can lower costs by two-10 times, just from smarter purchasing approaches.
2. Conquer Transportation Sourcing – Finally
Transportation is often the most difficult category to source; however, the effort reaps big rewards considering it typically accounts for 20%-30% of a product’s total cost.
With hundreds – or thousands – of transportation carriers, and rates that change daily, constantly ensuring that the optimal transportation mix is in place is a tremendous burden. Supply management teams must make fast, critical decisions based not only on price, but also on-time delivery rates, capacity and service fees (fuel surcharges, handling customs, etc).
The only way to be effective is to make decisions based on data, rather than hunches. Retail teams need an apples-to-apples comparison of the true costs, benefits and risks of each transportation scenario so they can make informed decisions about the trade-offs of each transportation mix they’re considering (mode versus capacity, versus lead times, etc.). Having this data sets the stage for growth, new savings and more efficiency.
3. Keep Stores Running – Without Breaking the Bank
Once products actually get onto store shelves, there are still opportunities to save. The bigger the store, the more it costs to maintain. On average, facility management and services, including janitorial services, building maintenance and security, account for seven-10% of the cost of goods sold.
Retailers can cut facility services costs by using some of the same strategies discussed earlier for sourcing merchandise. Retailers typically use multiple suppliers for various parts of facilities management – one supplier for snow removal, another for parking lot maintenance – even though there are suppliers that can take on multiple services, at a lower cost to the retailer. One big-box retailer has tripled its savings in this category by doing exactly that.
Another hidden cost: national facility management suppliers often have different costs for each geographic region, but only list an average price in a contract. Retail supply management teams can uncover even more savings by better understanding the costs and service differences between local and national providers. In many cases, the national vendors that retailers partner with may already be subcontracting with local suppliers – and keeping the price savings.
The common denominator for all three strategies: spend and supplier visibility. With no end in sight of rising costs, uncertain commodity prices and declining discretionary spending, it’s more important than ever for retailers to uncover new ways to improve margins and profitability. That begins with the supply chain.
Walgreens sees boost in April sales
Walgreens posted April sales of $6.49 billion, an increase of 8.8% from $5.96 billion for the same month in fiscal 2013.
Total front-end sales increased 8.8% in April compared with the same month in fiscal 2013, while same-store front-end sales increased 8.2%. Customer traffic in comparable stores increased 2.6% while basket size increased 5.6%.
For the combined March/April period that includes the Easter holiday season impact, comparable store front-end sales increased by 2.1%, while customer traffic in comparable stores decreased 0.9% and basket size increased 3%.
Prescriptions filled at comparable stores increased by 3.5% in April and increased 4.3% on a calendar day-shift adjusted basis. April 2014 had one additional Wednesday and one fewer Monday compared with April 2013. The retailer noted that the calendar shifts negatively impacted prescriptions filled at comparable stores by 0.8 percentage point.
April pharmacy sales increased by 9.2%. Comparable store pharmacy sales increased 7.3% and increased by a calendar day-shift adjusted 8.1%. Calendar day shifts negatively impacted pharmacy sales in comparable stores by 0.8 percentage point. Calendar day-shift adjusted comparable store pharmacy sales were negatively impacted by 1.3 percentage points due to generic drug introductions in the last 12 months. Pharmacy sales accounted for 64.5% of total sales for the month, the company stated.
Sales in comparable stores increased by 7.6% in April. Calendar day shifts negatively impacted total comparable sales by 0.5 percentage point. Generic drug introductions in the last 12 months negatively impacted total comparable sales by 0.8 percentage point.
Sales for the combined months of March and April 2014 increased 6.6% from the same two months in 2013. Comparable store sales for the March/April period increased 5.5%.
Kmart Pharmacy to offer specialty medicine
Kmart Pharmacy is working with Diplomat Specialty Pharmacy to give Kmart customers and Shop Your Way members access to specialty medications, bringing specialized support for a variety of patient conditions, including but not limited to: HIV, Crohn’s disease, anemia blood modifiers and Hepatitis C.
By 2018, specialty medications are projected to account for more than 51% of sales within the top 100 prescription products. Through this new agreement with Diplomat Pharmacy, an industry leader in patient care, Kmart offers a new level of service and convenience to meet the needs of the growing specialty medication population.
"We understand that when patients are dealing with a chronic or complex health condition they need an extra level of care," said Mark Panzer, president of pharmacy for Sears Holdings. "By partnering with Diplomat Pharmacy, Kmart Pharmacy is able to provide a highly trained team to support medication therapy and comprehensive care management to better serve our specialty pharmacy members."
In addition to HIV, Crohn’s, anemia and Hepatitis C, Kmart Pharmacies will also offer specialty medications to treat conditions such as cystic fibrosis, growth hormone, multiple sclerosis, osteoporosis, renal, rheumatoid arthritis, and transplants. In addition, patients will have access to patient care coordinators familiar with their medical files, specialized injection training (for patients requiring this service), and manufacturer co-payment support cards for eligible patients.
"Working with Kmart Pharmacies means millions more will have access to specialty drugs through the convenience of their local Kmart pharmacy," said Ela Lourido, director of retail specialty network for Diplomat. "It also means patients will have access to teams of specialists who understand their unique needs. The big winner in this is the specialty drug patient who now has a full team of healthcare professionals at their disposal, working together to ensure the best outcome."
There are more than 800 Kmart Pharmacy stores across the country.
Michigan-based Diplomat, founded in 1975, serves patients nationwide as the country’s largest privately held specialty pharmacy and focuses on complete medication management programs for patients with serious and chronic conditions.