Results Count ... everything else is conversation.

What does an Ox have to do with Retail?

International retail perspectives - The Asian New Year

In case you missed it, Monday January 26^th was the start of the Asian New Year.  The Lunar New Year is a classic example of why US based companies need to increase awareness of international holidays and their potential impact on retail abroad and in the US.

Asian and Vietnamese families celebrate more than just the day starting of the Lunar New Year.  Most gather family and friends and will celebrate this entire week … some as long as 15 days.  Now this is my kind of “eat about it” New Year’s celebration!

Lunar New Year Gift Giving – The Red Envelopes

Most Asian families, including Asian Americans observing the holiday, gather family and friends for dinners and intimate gatherings.  It is customary to give relatives and children traditional “red envelopes” containing monetary gifts.

Western economies could use the Lunar New Year red envelope tradition to stimulate retail right now!

Not so Fast – There is more than One Start of Lunar New Year

While most Chinese and Vietnamese will celebrate the Lunar New Year this week, different Asian cultures such as Cambodian, Hmong, Lao and Thai observe their New Year celebrations in February, March, April or even in December.   

Like many widely observed holidays, the Lunar New Year celebrations have been adapted to school schedules … and yes, to take advantage of local and cultural retail opportunities.

First rule of international retail, ALWAYS check the local calendar for observance of key cultural events and holidays.  

International Retail University Perspectives & Workshops

As I embark on delivering international Retail University workshops this year, we are compiling seasonality factors based on different regional and cultural patterns and holidays.  We welcome any input you might have regarding international perspectives, patterns and differences impacting retail.

I look forward to reporting back first hand experiences from this year’s Retail U workshops scheduled in Europe, Asia Pacific and China.

Year of the Ox – Perspectives and Trivia

Bill Imada has written a great article in Ad Age summarizing Asian interpretations of the “Year of the Ox”.  His summary of the Ox seems most appropriate for this coming year whether we use the Gregorian or Lunar calendar:

The Ox is the second icon in the Asian zodiac. Because of its position near the top of the zodiac hierarchy, the Ox typically represents a period of renewal and rebirth, or a fresh start

People born in any of these years would be Oxen: 1913, 1925, 1937, 1949, 1961, 1973, 1985, 1997 and 2009.

May you find reasons to celebrate renewal in the Year of the Ox!

How Much Do You Pay to Play

Can your team do the internet math?

You only need to peruse the headlines to see the importance and impact of web based retailing in these economic times.  It is no longer about getting “hits and clicks” … it’s all about generating profit margin based on key economic metrics.  Can your team forecast and manage the top internet economic indicators?

Internet Retailing 101 – Core Web Metrics

Success on the web is no different than success with brick and mortar stores … it all begins with marketing, traffic and generating conversion.  While it is sometimes imprecise and difficult to measure store traffic, the web metrics are much more precise.  Let’s take a look at key metrics for Pay-Per-Click marketing :

Impressions (searches) = # of views generated from a keyword entered into a search engine, like Google.

Sessions (visits or clicks) = # of clicks on a sponsored link or ad.  Typically counts as only one click within 30 minutes, regardless of how many times the user clicks the ad.

Click Thru Rate = Percentage of users who clicked an ad (sessions/impressions).

Conversion = Percentage of users who purchase a product (orders/sessions).

Web Retailing Economics – Core Profit Metrics

In any form of retailing, driving traffic through effective marketing is necessary … but not sufficient.  The web is no different than the traditional store.  The key to generating profit margin on the “basket” is relative to marketing costs and conversion rates.

Keyword Traffic = # of searches a keyword generates.

AOV = Average Order Volume (“basket”) – the lower the AOV the higher the conversion rate must be.

COGS = Cost of Goods Sold before advertising expenses.

Ad Cost = Cost per click … how much you pay per click or session if you are buying a keyword.  Rates per click depend upon the keyword and order of paid position on search engines.

Internet Retail Quiz – Can YOU do the Profitability Math?

Test yourself and your team.  See if you could afford to buy the keyword, based on the following internet economic metrics:             

$100 AOV

            70% COGS

            Weekly Sessions (Clicks) to Site = 2,000

Cost Per Click = $0.90

            Conversion = 1.5%

What would be your weekly profit margin on the data above?

The bottom line is that increasingly there is no separation between the web and the store.  The web is far from “free”.  Costs per click are highly competitive and can change multiple times per day.  Before “paying to play”, both vendors and retailers must be equally conversant in metrics … and become very proficient in the profit drivers.

No, we are not going to give you the answer to the quiz above.  If you are one of those that must know if you got it “right”, you can come to one of our Retail University Workshops or submit your answer here.

What week is it in Retail?

Fundamentals of the Retail 4-5-4 Calendar

Some of the most frequently asked questions in IMS Retail University are about retail planning, forecasting and execution cycles.  A fundamental basic of retail execution is consistency. So rather than use the traditional calendar on your wall or computer, everything in retail is based on their 4-5-4 Retail Calendar.

If you are responsible for retail and did not realize that in 2009 the month of January starts on the 3^rd, you are NOT on the 4-5-4 Retail Calendar and already out of sync.  Actually, Week 1 of 2009 does not start with January … it begins on February 1^st on the 4-5-4 Retail Merchandising 2009 Calendar.

What is the Retail 4-5-4 Calendar?

With a 365 day calendar, the weekends and holidays shift around from year to year.  The 4-5-4 Calendar sets every quarter to a 4 week month, 5 week month, 4 week month.  Each of the 52 retail weeks all start on a Sunday and end Saturday.

Why use a 4-5-4 Retail Calendar?

For retailing in developed markets, it’s all about “comps”, consistency and comparability.  By maintaining the consistent 4-5-4 weekly pattern, it is possible to keep the same number of weekends in each month.  It is also possible to keep major holidays, such as Christmas, in the “same week” to enable consistent year-over-year “sales comp” performance comparisons.

When did Retailers start using the 4-5-4 Calendar?

Prior to the 1940s in the US, there were not as many organized ads and promotions on a national scale.  With the growth of large national retail chains and Sunday circular print ads, the weekends became a significant part of weekly sales.  In order to track ad performance and make consistent year-over-year comparisons, US retailers started using the 4-5-4 Retail Calendar by 1950.

When in doubt – Ask for Their 4-5-4 Retail Calendar

Not all retailers start/end their fiscal years in the same month.  Hence, they may have adapted their own 4-5-4 Retail Calendar to fit their fiscal years.  While it follows the same general pattern, the corresponding week numbers may not match the National Retail Federation’s (NRF) 4-5-4 Calendar.  So by all means, ask for your retailer’s 4-5-4 to be absolutely sure what retail week # you’re in!

When and why is there a 53 week Retail year?

In the 4-5-4 Retail Calendar, 52 weeks X 7 days only equals 364 days per year, not 365.  In addition to this extra day per year, there are also leap years in the traditional calendar to compensate for the fact that earth’s rotation is not exactly 365 days per year.  To get back in sync, a 53^rd week is added to the 4-5-4 Retail Calendar approximately every 5 or 6 years.

Retail Quiz - When is the next 53 Week Retail Year?

Retailers (and vendors) love having that 53^rd extra week to “make the annual numbers”.  And, being creatures of habit and consistency, they plan well in advance for it by adjusting inventory, ads, promotions, etc. When is it time to plan for the next 53 week year?

So test your Retail IQ … when is the next 53 week Retail Year?

Hint: If you are not already using NRF as a retail resource, this is a good time to check NRF site and use the search: http://www.nrf.com/

Retail Survival is the “New Normal”

Three seismic shifts in critical success metrics

 

Sales volume covers lots of “sins”.  When consumers stop spending, the cushion of sales growth erodes along with margins.  Retailers can no longer bank on moving inventory in traditional seasonal cycles with the same ads and marketing levers.  Promotions and rebates simply don’t pull traffic or produce incremental sales the way they used to.

In the new normal, both retail and vendor survival will require a shift to more precision in achieving core metrics that drive profitability.

Inventory Management trumps “In stock”

Retailers are now obsessed with cutting both cost and risk.  Inventory is both the largest investments and risk.  Retailers are dramatically scaling back weeks of inventory on-hand, even during peak holiday selling seasons.  Even the largest and most successful retailers have already cut buffer stock to eliminate 4 or more weeks of inventory supply.  In the words of one vendor account manager, “no amount of back-end rebates will get retailers to take more shipments!”

In the new normal, open-to-buy rules!  It is far better and profitable for a retailer to suffer some out-of-stocks and to run out early … than to be stuck with a glut of inventory, as everybody pulls the trigger earlier to fire sale products. 

Profitability trumps “Sales Comps”

Some retailers have simply stop reporting same store “sales comps” year over year.  Best Buy and other astute retailers have already sent a clear message to Wall Street – they will not sacrifice profitability in order to achieve the traditional analyst metric of comp store growth.  

In the new normal, it is now more critical to achieve GMROII (Gross Margin on Inventory Investment) … than to meet volume forecasts or traditional “comps” on same store sales.

Reduced SG&A trumps “Service”

One only needs to scan the headlines of the Q4 2008 to see how many retailers cut headcount and reduced their seasonal, holiday labor force.  Labor is one of the largest components of SG&A (Sales General and Administrative costs).  As margin erodes from accelerated price cuts to move inventory, the operating margin gap between SG&A and gross margin becomes razor thin. 

In the new normal, retailers face an incredible “Catch 22” … they can ill afford to cut marketing, which drives traffic … but at the same time they must risk service levels by cutting labor costs, in order to reduce SG&A.

What does this mean to Vendors?

These are dangerous times.  Some retail buyers have already been given marching orders to double the vendor support dollars from last year.  There are even cases of retailers “holding  vendors hostage” to help move their unsold “house brand” inventory to generate open-to-buy dollars for future vendor orders.  

Vendors cannot afford to cover “retail sins,” in order to make their own shipment numbers.  To profitably survive, vendors must make the critical shift in success metrics from sell-in to sell-through.

Retail has always been about detail and performance based execution. Now, it is not a question of metrics, but the focus on the right metrics for survival and profitability in the “new normal”.  Results Count now more than ever!

In the new normal … are you measuring AND managing the critical success metrics focused on bottom line profitability and survival?