The Perfect Retail Storm
As many of you know, Bill Lawrence of Revitalization Partners has served as CEO of several mid-sized retailers including Pendleton Woolen Mills. In preparation for the holiday season, Bill offers caution and advice for many retailers.
We are rapidly approaching the 2014 holiday season where most retailers are looking forward to the traditional spike in sales that will account for the majority, if not all, of their profit for the year.
A recent Deloitte forecast suggests that sales for the holiday season will increase between 4 and 4.5% over last year. That is on top of a 2.8% increase in 2013 over the previous year. The current forecast certainly sets high expectations for the coming holiday season as retailers plan for increased sales.
It appears that the “perfect storm” may be in the making …
But wait, it is really important for retailers to be cautious this year as it appears that the “perfect storm” may be in the making. Historically, the retail market has been negatively impacted by major global issues. Deloitte’s forecast may be overly optimistic given recent developments.
The recent decline in the stock market, the developing Ebola crisis and growing international threats could undermine consumer confidence and make it difficult for retailers to achieve their objectives. Particularly for retailers whose operations are struggling or are highly dependent on the holiday season to be profitable for the year.
So, given the possibility of a “perfect storm”, what should retailers be doing now to manage through the season and maximize profitability during this important holiday period?
By this point in time, retailers have purchased and most likely received the majority of merchandise they have planned to sell. If they are not achieving sales expectations early in the season, attempting to reduce or cancel a portion of their purchases, may mitigate the impact of promotional pricing on slow selling items later in the selling season.
Retailers should prepare weekly sales …
Retailers should prepare weekly sales plans through the end of the holiday season and establish weekly inventory sell-through targets. This will provide a tool to monitor weekly selling activity and establish benchmarks for taking action should actual sales fall short of plan.
Weekly plans should also include planned marketing and price promotions to attract new customers during the peak shopping periods. The plan will establish a framework for additional price promotions that may be required if sales are not achieving the predefined weekly targets.
How to respond to sales shortfalls …
The objective is to respond to sales shortfalls and maintain planned inventory turnover throughout the season to avoid significant excess inventory at the end of the season that will result in higher price reductions and lower profitability.
Marketing plans should be focused on targeting the most loyal and repeat customers. Typically this group spends more than the average customer and is more profitable. Establishing special events and focusing on gift giving advice will provide a greater return than price-oriented promotions. Don’t forget to market gift cards as well.
Ensure that sales staff are trained to focus on …
Retailers should ensure that sales staff are trained to focus on selling key products and multiple items. Adding one additional item to each transaction can significantly add to the overall sales performance. It is also helpful to establish daily or weekly sales targets for each sales person and establishing rewards when those targets are achieved.
It is important to establish sales and marketing plans prior to the holiday season that will benchmark progress and establish key action steps if sales are not developing as planned. Having preplanned marketing and promotional events in place will provide a framework for making rational decisions to improve sales and maximize profitability if results are not up to expectations