New Retail Playbook

The National Retail Federation has outlined some proactive steps for retailers to take, advising them to take charge of their destinies, instead of waiting for change to come to them. “A new playbook must be developed for the evolving environment,” the NRF says. “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, driving incremental sales with targeted, sharper merchandise presentation. Retailers and manufacturers must think about the business differently. Looking at what you did yesterday, but trying to do it better, will not be enough. Your customer of yesterday is different today and will be different tomorrow.” To that end, the NRF has listed a series of steps retailers must take this year to ensure success.

Thinking about it differently. The management of most companies has already taken action, reducing discretionary spending, slowing expansion, curtailing payrolls and tightening inventory controls. While these steps are reminiscent of past recessionary periods, management is beginning to realize it will not be business as usual during this recovery, and is planning accordingly.

Doing it differently. The first step is for retailers and manufacturers to engage in an intense self-analysis.

It will not be business as usual. Apparel deflation over the last 15 years reflected growth in lower priced imports from China, helping expand gross margins for vendors/retailers. There is currently excess production capacity in Asia, which should hold prices down over the near term, but the threat of inflation will likely loom as the economy recovers.

Developing a more profitable business model. Management must focus on redirecting cash flow towards greater differentiation. A top priority would be intense research into target consumers, something very few brands or retailers do on a consistent basis.

Higher average selling prices. Lower inventories and reduced markdowns are currently contributing to gross margin improvement, and lower sourcing costs could also play a role in improving that margin.

SKU rationalization as a means to profitability. Wherever possible, minimize clutter in presentation. Inventory reduction and allocation has been a prime focus in recent months. Retail traffic and sales declines will likely stabilize due to easier comparisons and slow improvement in economic activity.

Focus on maximizing gross profit per square foot. Quality of sales is more important than quantity. 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.

Sifting through the rubble, building a business at the top. Retailers and vendors need to develop a closer working relationship, as each looks to develop a more profitable business model. They must be willing to reach out and establish best practices in establishing a new partnership. Over time, entrepreneurial and visionary management has been replaced by executives with a primary focus on growth, and unfortunately, the needs of the consumer were forgotten in this transition. For a look at the complete report from the NRF, go to http://tinyurl.com/24gkjr6.

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