Stay Ahead of the Curve

A new Whitepaper from the National Retail Federation offers some concrete marketing points for retailers still struggling in a weak economy. Titled, “Stay Ahead of the Curve,” the report presents nine solid ideas and suggestions for those riding out the current economic doldrums. The complete report can be found at http://tinyurl.com/24gkjr6, but a synopsis of the nine points follows.

Go On The Offensive
A new playbook must be developed for the evolving environment. Going forward, new, differentiated and unique merchandise, targeted to the right consumer, is a must. While value will likely remain a key ingredient to purchase, retailers need to stoke want and desire with excitement. Your business plan should evolve, rather than be etched in stone.

Thinking About It Differently
With credit harder to obtain, emphasis will be on financing ongoing operations rather than pursuing innovation, the historic driver of sales. There will be less investment in store openings, entry into new markets and implementation of new growth concepts. It is through the appropriate and strategic allocation of cash flow that companies will find ways to profitably grow market share.

Doing It Differently
Inventory management is one of the important keys to managing the distribution process. The strategy of a steadily increasing initial markup to offset the increasing markdown rate/allowance must be reversed, so that the consumer perceives greater value at the outset.

Not Business As Usual
Markdowns, and the corresponding inventory levels from which they result, will continue to have the most significant impact on margins, regardless of the merchandise issues that have also been a factor. Quantity and quality are critical issues, but the industry must strive to have a better balance of merchandise.

Developing A More Profitable Business Model
Management must focus on redirecting cash flow toward greater differentiation. A top priority is intense research into the target consumer, something very few brands or retailers do on a consistent basis. The answer to why mall and store traffic has been on the decline for most is simple. Aside from the economic slowdown of recent quarters, there is little incentive for consumers to visit, when the expectation is that they will not see anything new.

Higher Average Selling Prices
Lower inventories and reduced markdowns are currently contributing to gross margin improvement, and lower sourcing costs later this year could also play a role in improving that margin. Retailers need to increase their focus on driving gross profit per square foot to counteract growth concerns. They are past the days of moving the markup higher; rather, the strategy should evolve toward a higher rate of sell-through and inventory turnover.

SKU Rationalization
Wherever possible, minimize clutter in presentation. Inventory reduction and allocation has been a prime focus over the past 12 months. Retail traffic and sales declines will likely stabilize over the next few months, due to easier comparisons and slow improvement in economic activity. The consumer will remain value focused, and promotional activity will continue.

Focus On Maximizing Gross Profit Per Square Foot
Management needs to begin considering how to move back to a model that includes more full price selling through lower inventory, a better mix and balance. It is better to lose a sale than have too much excess at the end of the season.

Sifting Through The Rubble
Strategy has to shift back to the consumer, and truly understanding their wants and needs. There has to be more collaboration between retailers and vendors in managing the merchandise assortment.

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