Store pro­duc­tiv­ity, same-store growth

What is your pri­or­ity no. 1?

Progressive Grocer (India) - - Memory Lane -

It’s quite amaz­ing that “store pro­duc­tiv­ity” doesn’t grab the at­ten­tion of most peo­ple in the re­tail trade in In­dia, de­spite the fact that real es­tate costs are rid­ing an all-time high. In the chase for topline growth, many re­tail­ers are step­ping over the ground re­tail­i­ties of suc­cess. It’s be­come quite typ­i­cal for rentals to range be­tween 20-25 per­cent of sales, and in many cases even higher than that. (In those in­stances, a re­tailer could only hope to make money out of il­le­git­i­mate ac­tiv­ity or il­le­gal mer­chan­dise, which is not part of the busi­ness plan of any­one I know!)

Many brands will (and pos­si­bly can) jus­tify pay­ing ab­surdly high rentals with the ra­tio­nale that in the store port­fo­lio, some lo­ca­tions will never make money, but are needed as mar­quee lo­ca­tions for “must-have” vis­i­bil­ity. This can work if you do have a bal­anced store port­fo­lio. The -ques­tion is whether the low-rent lo­ca­tions ac­tu­ally have the ca­pa­bil­ity to gen­er­ate enough mar­gin to sup­port the un­prof­itable lo­ca­tions.

While some of the rentals are com­pa­ra­ble to ex­pen­sive real es­tate in the de­vel­oped mar­kets, gross mar­gins in In­dia are typ­i­cally thin­ner than in

Europe, USA etc., re­duc­ing the spread a re­tailer has for its op­er­a­tional ex­penses. Add to the mix over­es­ti­ma­tion of con­sumer de­mand, and the sce­nario looks even gloomier.

In this con­text, to my mind, each store needs to be made as pro­duc­tive as it can be. There needs to be fairly sharp fo­cus on store per­for­mance and cat­e­gory per­for­mance data.

How­ever, in the last 18 months or so, con­ver­sa­tions with In­dian and in­ter­na­tional brands and re­tail­ers op­er­at­ing in the In­dian mar­ket, showed that topline (sales) growth and new store open­ings were the fo­cus for most re­tail­ers (even till a few weeks ago). Most branded sup­pli­ers have also shown un­prece­dented sales growth on the back of new store open­ings – their own ex­clu­sive stores, as well as new sites be­ing added by de­part­ment store chains car­ry­ing their brand.

For in­stance, in March 2007, one (new) brand said that their busi­ness plan called for 50 stores by the end of 2007, and 100 by the end of 2008. Their ag­gres­sive plans were based on a very ag­gres­sive read­ing of the mar­ket and its growth pat­tern.

Cer­tainly, when sales growth can be achieved just by open­ing more new boxes (stores), pro­duc­tiv­ity and ef­fi­ciency don’t ap­pear to be im­por­tant. Strat­egy, new open­ings, new prod­ucts and even new brand launches, are more ap­peal­ing and at­trac­tive, than look­ing at bor­ing old op­er­a­tions and ef­fi­ciency mea­sures.

How­ever, I be­lieve 2008 will see a change in man­age­ment pri­or­i­ties. I don’t think the un­named brand above will open its 100 stores. It is very likely that they will want their al­ready opened stores to work harder. In a com­pet­i­tive mar­ket where the growth trend is slow­ing, there is more to be gained by milk­ing ex­ist­ing in­vest­ments, than by open­ing in­creas­ing num­bers of un­der­per­form­ing stores.

Achiev­ing such pro­duc­tiv­ity is ob­vi­ously linked to store op­er­a­tions – peo­ple, process, and tech­nol­ogy. When the mer­chan­dise and the cus­tomer are both in the store, you need to make sure the two are matched quickly and ef­fec­tively, and that there is a fo­cus on con­ver­sion, av­er­age trans­ac­tion val­ues and ef­fi­cient in­ven­tory man­age­ment. But that is only one part of the story.

Sup­port func­tions, such as mar­ket­ing, sup­ply chain, buy­ing and mer­chan­dis­ing, have a huge role to play as well in en­sur­ing that the prod­uct in the store is ac­tu­ally pro­duc­tive and saleable, rather than just fill­ing shelf-space.

Cat­e­gory man­age­ment, ef­fi­cient and re­spon­sive sup­ply chains, op­ti­mis­ing store-foot­print and catch­ment to en­sure max­i­mum walk-ins... all of th­ese are some of the is­sues I be­lieve top man­age­ment needs to look at care­fully in the com­ing 24 months.

If you are in a se­nior man­age­ment po­si­tion in a re­tail busi­ness, we would be very in­ter­ested in hear­ing what your pri­or­i­ties are this year.

Cat­e­gory man­age­ment, ef­fi­cient and re­spon­sive sup­ply chains, op­ti­mis­ing store-foot­print and catch­ment to en­sure max­i­mum walk-ins... all of th­ese are some of the is­sues I be­lieve top man­age­ment needs to look at care­fully.

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