From The Co-Founders

 



When Being a “Mirror of Society” Is Not Enough

In a week that brought three more incidents of black men killed by police, and then police in Dallas being shot and killed by snipers, we agree with President Obama: "We are better than this. We must be better than this."

Followers of The ROI know that one of our underlying convictions is that "retail is a mirror of society."

But these times demand more from us than just a passive reflection. Retailers are quasi-public figures in their communities, after all. And especially now, retailers have an opportunity to demonstrate what exceptional "citizenship" might be like in their communities.

No, not flag-waving so-called patriotism. Responsible "citizenship".

Think about your leadership opportunity. As a retailer in your community:

  • What could you do? 
  • What should you do? 
  • What will you do?

And one more thought: If not you, then who?




Who's Really Paying the Freight for Amazon's "Free" Shipping?

A recent study by consulting firm Shipware LLC documented the commanding advantage Amazon has established in shipping. The "big shippers" - so-called Mega-Retailers like Amazon, Target & Wal-Mart - get dramatically more favorable rates from carriers such as FedEx and United Parcel because their volume is "guaranteed and predictable". 

The discounts they have negotiated provide a decided advantage over their smaller online competitors. As a result, the costs absorbed by the Mega-Retailers to provide "free shipping" are breath-takingly less than those for their smaller competitors. 

  • The Small-Medium Retailer incurs ground shipping costs 3 times greater than the Mega-Retailer, and Express shipping costs that are double what the Big Guys must absorb.


Shipware estimated the shipping costs that would be incurred by each type of merchant to ship a 10-inch square box weighing 3 pounds from New York City to a suburban residence in Atlanta.


The Big Keep Getting Bigger

For the mega-retailers, free shipping is essentially a loss leader. It drives tremendous volume (and customer loyalty) while also enabling greater and greater negotiating strength with the shippers. And one more price advantage over their smaller competitors.

Might there be some relief for the Small-Medium Retailers as Amazon grows its own shipping fleets? That is, faced with reduced volume from Amazon, might FedEx and UPS be more willing to offer better rates to all the other customers?

Sigh. We wouldn't count on it.

Or, given this huge discrepancy in costs, perhaps other shipping services emerge to fill this vacuum. Perhaps consolidaters of some sort? Or...???


 


Survey of Retail Owners:

"What do you NEED in order to grow?"

In mid February, we were struck by the contrasting characterizations of the business climate.  On the one hand, we were hearing from independent retailers that business was good. Meanwhile, even casual followers of the news heard only of worldwide economic uncertainty, a stock market of major mood swings, and of course, a bonanza of political theatrics.

So, we sought a “reality check”; a short and quick survey of readers of The ROI NEWS. 

We asked  about retail sales (up? down? sideways?) But, we mostly wondered what really matters to retailers who want to grow. What do they need the most? Here are the results.


“What do you MOST NEED in order to GROW your business this year?” 

We offered a list of 7 items (plus a fill-in-the-blank “Other” option), and asked the respondents to rank the importance of each item for being able to grow this year. 

Percentage of respondents ranking the factor #1 - Need MOST - to #7 - Need LEAST - in order to grow.source: The Retail Owners Institute(R), www.RetailOwner.com

Based on the percentage of respondents who rated each factor: 

Two factors stand out for the #1 MOST NEEDED in order to grow: 

Better marketing & social media 
Better sales people and/or store managers 

What is LEAST NEEDED by these retailers in order to grow? 
Again, two factors stand out: 
Technology upgrades 
Store remodel(s)

In the middle:
Hovering in third, fourth and fifth place, needed but out-ranked by other issues: 

Better Vendor Support
Better Buying Decisions

Better Website for Online Sales

 

A slightly different priority order emerges when the rankings are averaged, as one factor was consistently ranked #2 or #3. 

Overall, the lowest ranking (and hence highest priority of MOST NEEDED to grow) is Better Marketing & Social Media, followed by Better Buying Decisions, and then Better Sales People. Store Managers.

 

"So far this year, how are sales?"

Sales UP vs Last Year. Transactions UP, but Not As Much.

majority of the respondents (55%) report that so far this year, sales are UP compared to last year. However, only 42% reported customer counts (transactions) being UP, suggesting that prices or margins have risen, or customers are buying more items per transactions. 

Any Online Sales?

Forty percent of the respondents are “omnichannel” retailers, selling online as well as in their brick-n-mortar locations. For most of these retailers, online sales represent up to 10% of their total sales. 

NO Online sales - 60%

Up to 10% online - 34%

11% to 25% online - 3%

25% online - 2%

 

From The Comments: Sensitive Issue #1 = Vendor Support 

Comments shared by the respondents covered many topics, ranging from access to capital, to depressed oil prices, election year uncertainties, declining population in their community, etc. 

One recurring issue, however, suggests a particular sore point: vendor relations. 
Here are some examples: 
  • “Better vendor support means support us instead of competing against us.

  • “Less on-line competition from our vendors, coupled with less fascination by the media with everything digital as it relates to retail.”

  • “Vendors selling directly to the consumer is a huge problem.”

Other Issues/Concerns/Observations 
  • “Being a small business in a rural area we need more capital in order to purchase inventory and create a job or two. These small rural areas do not support the business when times are tough for those around us.”

  • “Without access to capital and other tools the independent retailer will never be able to successfully compete with the big box stores."

  • “Up only slightly, but up, from last year which was a record year for us, really up. We think economic uncertainty has slowed our growth.”

  • “Although sales are up the margin is small. It is still evident that the economy growth is very slow.”

  • “It's an election year. People are scared of the possible effects of the change, or lack of change, in leadership.”

  • “Last year was our best year ever (after 10 yrs in business) and this year is up over last year by 20%.”

  • “Every customer that comes in has already made a "design“ decision on their phones before they come to the store. So now MY inventory is deemed useless and I'm having to chase the design that is on the phone. GRRRR. Life was better before the internet (at least for sales).“

  • “Retail is not easy!”

The Respondents 
All respondents have brick-n-mortar locations; no “online only” retailers completed the survey.

One-fourth of the respondents are multi-store operators: 11+ stores, 4%; 2 to 10 stores, 20%; 1 store, 75%.

 


 


Even the Big Guys Can Err

You've probably noticed in the national media that several major retailers are needing to take extra markdowns because they find themselves over-inventoriedSee, it can happen to everyone! The list is impressive, and indicates an industry-wide situation: Macy's, Kohl's, Nordstrom, Ralph Lauren, Dick's Sporting Goods, Nike, Lululemon, Under Armour, and others.

Our message to you has two parts:

  1. This Holiday Season, more than in recent years, will result in lower margins and ugly fourth quarter profits. Sorry, but that is what we anticipate. The apparent glut of excess inventory will result in industry-wide discounts, promotions, sales and events that also will affect you.
  2. In situations like this of excess inventory, independent retailers have an enormous advantage: they can adjust quickly without the pressure of reporting and explaining to shareholders. But, independents must act quickly or suffer greatly!

We didn't say "over-react". We simply urge greater attention to your inventory levels. Starting immediately!

Every department in your store(s) should adhere to its appropriate targeted turnover rate (as set by the owner or merchandise V.P. for doing mandatory Open-to-Buys). Go to the Retail Benchmarks pages to get segment turnover rates as a guide, if needs be. 

The following technique is a must. And yes, it is free! (Close followers of The ROI know how much we value "And it's free".) No excuses allowed!

An additional use of turnover is to readily calculate what we call “one turn’s worth”, an easy way to monitor inventory levels. Here's an example of how easy this is to use: 

  • For instance, if you sell gifts and if you manage that department at 2.4 turns, you divide 2.4 into 12, the number of months in a year (or into 52 weeks, if you prefer). You will get 5 months (or 21-22 weeks), which represents “one turn’s worth”.
  • Next, being very realistic, decide what total sales for that department are likely to be for the coming 5 months (or 21 weeks).
  • Now, compare that expected sales number (which is @retail, of course) to your current inventory on hand @retail for that department. You will see immediately if you have excess inventory, and if so, how much! (What is “excess”? Any amount greater than “one turn’s worth”.)
  • Keep doing this for every department, based on its targeted turnover rate and expected sales, through the Holiday Season.

 

 


Alert! Amazon Books Is Only the Start!

We have watched the opening of Amazon's first bricks-n-mortar specialty store with great interest. And here is our conclusion: Brace yourself! 

In fact, we anticipate an onslaught of entire shopping centers of Amazon "specialty retail stores". (Zappos Shoe Stores, anyone?!) All using the same data-centric efficiencies Amazon is testing at Amazon Books, its just-opened bricks-n-mortar bookstore.

Whether apparel, electronics, sporting goods, kitchenware, jewelry, hunting gear or whatever: Amazon has incredible customer data.

Now, imagine a center full of separate Amazon "specialty stores" of categories specifically tailored to that particular market: hunting and fishing gear in some places; hiking and backpacking gear in another market.

Breath taking, isn't it? But that is our prediction: "Earth's Biggest Store" will find you and others who shop like you, (or your customers and others who shop like them) and set up its own specialty shops.

Talk about target marketing!

A Little Background
Last week, in a prominent location – complete with a brick facade – in an upscale shopping center in Seattle, Amazon opened the "real wooden doors" on Amazon Books.

Hmm. Actually, Amazon Books has far more in common with Amazon.com than with bricks-n-mortar bookstores.

First, it is VERY data-centric. The books they carry, Amazon says, "are selected based on Amazon.com customer ratings, pre-orders, sales, popularity on Goodreads, and our curators' assessments." And it's hyper-local; it represents the tastes and preferences of the readers in that local market.

Second, they have inoculated themselves from price competition from "the web": all prices in the store are the same as on Amazon.com. 

Third, they are constantly gathering customer data. No prices are displayed at Amazon Books. Want to know the price? Just scan the barcode below each book. Be sure to do so with your Amazon app; for convenience, you know.

And, it's true; they do not take cash. Yet another typical cost they have eliminated.

In our view, what they have opened is a new kind of category killer, in a very small footprint.

They are using their vast storehouse of data to offer only the best turning inventory, to a targeted, localized market.

And, they have the pricing advantages that come from size. They are "earth's biggest bookstore", after all.

Their pricing is dynamic; e.g., $16.25 today, $17.85 tomorrow. What will it be next week? That's the marketplace dynamics in action.

And, it certainly continues Amazon's relentless pursuit of turning "the art of retailing into the science of retailing." No more need for judgment calls from the high-salary buyer; just follow the data! (The data isn't temperamental, either!)

The issue is this: with its vast 20+ years of customer data, Amazon is showing its ability to again reinvent retailing. But this time, it's not just e-commerce. This time, it is all specialty retailing.

 

 

 


More Retailers Should Copy REI!

"REI believes that being outside makes our lives better.
That's why this Black Friday, we're closing all 143 of our stores
and paying our employees to head outside.
We want you to join us.
#OptOutside"

The news that REI would be closed for business on Black Friday proved to be a stunning announcement to many.

How did the "experts and analysts" react? With suspicion. There must be some defensible business explanation of an otherwise inexplicable business move. What retailer would give up Black Friday sales?!

"Well, Black Friday must be a slow day for them." [Actually, according to REI, it's one of the Top Ten sales days each year.]

"Well, they must expect to make it up via their online sales." [Actually, their online orders will not be processed until Saturday.]

"Well, they are a co-op; they don't have shareholders to answer to." [But the Member's annual dividend rate is based on REI's performance. Sales DO matter.]

"Well, it must be a calculated marketing ploy. Just look at all the free press they are getting." [Hmm. Does confounding the business experts really count as "marketing"?]  

You get the drift. Try as they might, the search by experts for REI's ulterior motives seems to have come up empty.

Excellent Case Study in Retail Leadership and Citizenship

We find REI's move to be an excellent case study example of retail leadership and citizenship. They simply found a new way to express their dedication to their core purpose: outdoor adventure; conservation; stewardship of the environment.

We hope that more retailers will copy REI. No, not necessarily by closing on Black Friday.

What we would like to see is a renewed commitment by retailers to their own unique opportunities for bold leadership and good citizenship. REI has taken the high road; couldn't more retailers do so, too?!
 


 

Now THIS Is Exciting!

For a couple of decades, we have been traveling all over North America helping retailers, presenting workshops and building The Retail Owners Institute. But, as we often explain, "This team travels on its stomach!"

A little background is in order. When we first started working as a team, there were two vital elements that were potential impediments to the partnership: 

  1. Would we both be intrigued by the same sports? (Dont laugh; this team stuff wouldn't last if one of us was a baseball junkie and the other didn't know which city hosted the Cubs.)
  2. Would we both be agreeable to the same restaurants? (Don't laugh; we've had over 10,000 meals together and that may be more than with our respective spouses.)

"Impediments?" You bet! And they had to be resolved very early. We both were concerned.

Then, one of the first retailers we helped together was a rabid sports fan. A classic three-person competition occurred: Who knew the most about Woody Hayes and Ohio State football history?!

Well, that left the food issue to be resolved. But not for long!

Famished one afternoon, we pulled into a McDonalds without a prior discussion. Yes, we were that hungry! Unbeknown to either of us, we each had spent time and money with our respective children at McDonalds. And who doesn't like their fries, after all? (In fact, one time we attended a very ticklish bank meeting with a client in Milwaukee. As we were to meet the frowning banker, our client introduced us by saying, "Oh, I just picked up these folks at McDonalds!")

So, both mysteries resolved. Impediments disappeared. Whew! 

Why are we telling you all this (personal) stuff? Two reasons:

  1. The 2015 World Series is about to start, so "we're lovin' it"!
  2. McDonalds has been making changes/improvements, and those have immediately improved sales and profits. (Click here for more about that)

You see, for many of you the concurrent World Series and McDonalds better menu may be just interesting. But to us, they are very significant!

 

 

We Are Not Yogi, But...

Retailers could learn a lot from baseball, and, if not already, should immediately become students of the game.

Currently, the Major League Playoffs are underway, and we're reminded of the lessons that baseball offers retailers. One of its key lessons really jumps out: Try – Fail? – Forget!!

Consider this: the best team in Major League Baseball this season was the St. Louis Cardinals, who won 100 games. Congrats to them.

But those 100 wins represent just a 62% success rate. So, that means they Tried – Failed? – Forgot! over one-third of their season. 

And of course, the very best hitters in the Majors this year tried and failed to get a hit nearly 70% of the time.

And that's where retailing comes in. (You were wondering, right?) Think about it. So many stores (or websites) are stale, drab, unexciting. 

And why is that? Our conclusion is that too many retailers are too timid to try new things. They are too afraid of making a mistake. Too afraid to fail. 

Consider some of the largest retailers in your community. When was the last time you walked in and exclaimed, "Wow! Look at that!!" For many stores, that's probably an experience you've never had, right??

Look, for those retailers without newness, without some excitement, without the "theatre of retail", why shouldn't competition, online and offline, replace those stores even more rapidly?! (Hint: It probably will.)

So we encourage you to take a lesson from baseball. 

Timid, stale retailers should try many more things

Will every one of them be a hit? No, of course not! 

But the lesson is, forget it! Come back tomorrow. And keep swinging!


 


Verbatim Feedback from Retailers:

"Does Social Media Effectively Influence Sales?" 

"Social Media". It's all around us. But what retailers want to know is this: "Is it effective? That is, does it raise sales?" 

Is social media effective for retailersSo, in early August, 2015, we conducted a very short survey among readers of The ROI NEWS about how retailers use social media, and whether or not it effectively infleunces sales. 

Well, we sure tapped a nerve! Retailers indeed are very active with social media. 

And, we also confirmed that retailers – at least, those who responded to our survey – are very focused on accountability. They too keep examining "Is it working? Is it effective? Is it driving sales?!?" 


Key Findings from Retailers About Social Media

Previously we reported the quantitative results from this Social Media Survey (go here for those details). Just to recap the highlights: 

  • About 1/3rd of the survey respondents are multi-store operators.
  • Facebook is used by nearly every retailer (96%) who responded. 
  • Three other platforms – Instagram, Pinterest, Twitter – each are used by at least 1/3rd of the respondents (and that usage is increasing).
  • What about "effectiveness"?
    • Over 3/4ths of Facebook users agree that it "Seems Worthwhile/Is Very Positive!" for influencing sales
    • Nearly 2/3rds of both Instagram and Pinterest users report those platforms as "Worthwhile/Very Positive!" for influencing sales
    • More than half of Twitter users agree that Twitter has a "Worthwhile/Very Positive!"  effect on sales

Now, Here's "WHY" They Say That

We also received explanatory comments from retailers, either regarding the effectiveness of each social media platform, or about their experience with social media in general. Here are some recaps, verbatim (yes, including those smartphone typos) of many of their comments.

Comments from Retailers re Social Media

Comments from Retailers re Social Media

Comments by Retailers re Social Media

Comments from Retailers re Social Media effectiveness


And, here are verbatim comments re each platform's impact on sales.

Comments re Facebook from Social Media Survey

 

Comments re Instagram

Comments re Pinterest

Comments re Twitter




Is Social Media "Effective" for Retailers?

We asked; you answered!

Is social media effective for retailers

The ROI NEWS asked retailers this question about the effectiveness of Social Media: “Does it raise sales?!”

We invited retailers to take a short, quick, 6-question survey about their use of promotional tools in general, and, in particular, “Social Media”: Facebook, Twitter, Pinterest, Instagram, LinkedIn, Other.

We asked, and you answered!

You quickly confirmed that “social media” is in fact a hot topic among retailers!

And, you are willing to share your experience with it with others, and for that we say, Thank You!!

After reviewing the survey results, we have prepared some charts to summarize the findings. Scroll down to see:

  • Which social media platforms are favored by retailers?
  • Which types of social media are effective (or not) at raising sales?
  • Are any platforms likely to be used more in the near future?
  • And more!

 

Social Media Survey Results

Q. #1: In general, over the past couple of years, how has your use of promotional tools changed?

Of those who use these promotional tools, Print Advertising and Direct Mail are being used "much LESS" by retailers. 

What is increasing? The "digital media":

  1. Social Media
  2. Online pay-per-click advertising
  3. Email blasts
  4. Website and/or blog

 

But, not all retailers use these types of promotional tools, whether "traditional" or "digital". Here are the percentage of all respondents who "Do not use; have never used". 

In particular, "Online pay-per-click advertising" (aka Google ads) has been avoided (or abandoned?) by these retailers.


Q. #2: Now, about Social Media. If you are using it for your stores, which platforms do you use?

Facebook is by far the most popular platform among retailers, being used by 96% of all the survey respondents!

The next 3 in usage - Twitter, Pinterest, and Instagram - each represent but a third of the usage of Facebook.


Q. #3: Of each Social Media platform you do use, how long have you been using it?

Once again, Facebook is the runaway "winner" in terms of longevity among users. But, in fairness, this result may simply reflect the relative "age" of these platforms; some simply are newcomers!




Q. #4: Key Question: Of the Social Media you use, how has it INFLUENCED SALES?

Again, Facebook is "the winner". 76% of the retailers who use Facebook report it "Seems worthwhile" or is "Very Positive!" That likely explains why 96% of the retailers who responded are using/continuing to use Facebook.

Instagram – a relative newcomer – gets "Worthwhile/Positive" ratings from 2/3rds of its users, and Pinterest is similarly strong.

Meanwhile, "Not at all" is a popular choice, isn't it? (Of course, a given platform's effectiveness at influencing sales will be a function of how each one is used.)



Q. #5: Have you used any of the ADVERTISING PROGRAMS that are available on these platforms?

There is a high degree of participation in the paid advertising programs available for users of Social Media platforms, especially on Facebook. Those who are not already active in this way anticipate starting soon.


Q. #6: And finally, just a bit about your stores. How many do you have now?

Sure enough, the survey respondents are "representative" of the independent retailer community at large: about 1/3rd are multi-store operators.





Since 1999, empowering retailers and store owners to "Turn on your financial headlights!"






About The Co-Founders

 





The Co-Founders of The ROI - Patricia M. Johnson and Richard F. Outcalt - are the principals of Outcalt & Johnson: Retail Strategists, LLC. Pat and Dick consult with retailers throughout North America on strategic growth, transition, and turnaround issues.

Since 1999, they have been building The Retail Owners Institute®: an extensive, online-only resource of specialized retail financial know-how and tools, used and loved by retailers worldwide, 24/7.   

Ten years later, with the launch of Retail Startup in 2009, they began developing additional special-focus websites for a retailer's most demanding management issues.

Today, these Retail STRATA:G® Online Resources - The ROI plus seven additional proprietary sites - offer unmatched strategic financial know-how and resources to any retailer, anywhere. "All it takes is a little desire...and a web browser!"