Case Studies

Consolidation and restructuring for healthy new growth

After a period of dynamic growth followed by a drop in results, an internationally operating sporting goods and lifestyle brand with ~500 stores in 40 countries seeks a qualifi ed assessment of its retail business.

Within six weeks, a team of two experienced managers from Team Retail Excellence analyzes the fi nancial status quo in 20 European countries in which the brand runs retail stores, working with the management to develop a framework for competitive store growth programs. On completion of the assessment, the board of directors broadens the project scope to include further analyses of the other countries throughout the world, with a focus on Brazil, China, India and Russia. After evaluating the portfolio and looking closely at the strategic and structural defi cits, TRE makes its recommendation: put the brakes on growth and begin consolidating.

In cooperation with the company’s retail and fi nance department, TRE develops a budget and 5-year plan to get the retail business back on track for growth. The short-term investment budget focuses on the development of a restructuring package. The key: the breakeven point for sales must be reduced significantly. To achieve this, a number of stores are put to the test. Overhead structures are to undergo reshaping, while withdrawal from strategically less important markets is considered.

Ten months into the project, TRE continues to provide valuable implementation support. Five Team Retail Excellence managers with different areas of expertise have helped initiate meaningful and structured corporate development.

Deliverables include:
•  Diverse retail analyses and planning instruments (e.g. country readiness assessments)
• Manual of the top 20 global retail benchmarks
• A restructuring plan to reduce overhead costs by more than 25%
• A new retail vision and strategy
• Management programs for turnaround

We have now begun to structure the reorientation in cooperation with the new retail management.

Direct sourcing boosts gross margin by €15M

A fashion chain specializing in private labels in the midrange segment and operating with total sales fl oors of 200,000 m² wants to reorient its buying within three seasons. As part of an international retail group, it has access to a buying organization in Asia, but only 20% of goods are bought there. The share of imports has stagnated for years, as its processes and organization are insuffi ciently prepared for large-scale direct buying in low-wage regions. In contrast, direct competitors operate with an initial markup of up to 70% and achieve margins of 61%.

Team Retail Excellence begins working with the buying department to develop quick-win programs aimed at shifting €50m of buying volume to take advantage of “lowhanging fruit.” At the same time, the groundwork is laid for the successful implementation of direct sourcing. A detailed action plan ensures that restructuring objectives are achieved.

The results realized include:
• Objectives and measures in each product group with the overall goal of achieving 70% direct buying and an increase in gross margin of 3.9% pts. within two years.
• The proportion of imports is doubled to 45% within just two seasons and the initial markup is increased by more than 4% pts. Gross margin growth: almost €5m.
• Supplier scoring and establishment of strategic supplier alliance in Western Europe. Domestic suppliers reduced by 20% within the second season.
• Sourcing strategies developed for key countries, supply channels and suppliers in each product group.
• New assortment development process aimed at achieving 80% in-house product development.
• Development of key performance indicators (KPIs) in monthly buying reporting to measure implementation progress.

Sales targets doubled - from opportunistic store openings to structure and strategy

An American fashion group with seven brands in wholesale, own retail and partner retail has grown its European sales to 1.2bn. Partner retail makes up 5%, based on opportunistic and unstructured development. Country-level sales managers have taken different paths, and the approximately 200 stores in nine European countries offer consumers different shopping experiences. But what’s lacking most is transparency as to whether growth potential has been exploited and whether partner-retail is as profitable as wholesale.

We form a small project group of brand managers, country managers and business analysts, assess the existing processes, organizational structures and tools used to steer partner growth. As with most European brands, partner retail grows mainly through the initiative of key accounts, without a sales force of its own or local competency. But two brands set internal benchmarks, demonstrating with 50 stores and a sales share of 20% that partner retail can be an autonomous and dynamic sales channel, provided you know how to organize it.

We examine the contracts and economic viability in the business and for the first time document the profitability of partner retail. As with other brands, partner retail is larger and more profi table than own retail. But it emerges that key account managers often include very generous discounts in partner contracts, where investment subsidies would be a better solution.  

• In a series of workshops with sales managers and controlling staff, we present our findings and discover that, above all, brand managers with wholesale experience can benefit from learning more about partner retail
• We develop an organization scorecard, an array of partner-retail steering tools and recommend developing partner retail to become a sales division in its own right
• We revise the standard contract, encourage a change in the discount policy and develop a tool to calculate partner investments
• We demonstrate to the brands that their partner retail has significantly larger growth and sales potential and double the original expansion plan for the coming five years

In the years that follow, based on newly acquired trust in their partner retail readiness, the brands invest in the business area and appoint managers with experience in partner retail.

The five-year targets are met as early as three years after completion of the project. Above all, improved transparency and revised contracts help signifi cantly boost profitability.

Multichannel - Multichallenge

Faulty category-management and expansion policies force a medium-sized multi-channel company belonging to an international retail group to kick off a turnaround program. The new management launches the recovery program by closing stores and cutting costs, and achieves the turnaround within a few months. But it’s still a long way to the breakeven point, not to mention bestin-class status – especially for the buying department, which has to single-handedly serve three retail formats. The challenge: the sales channels are drifting apart, yet synergies must still be realized.

Team Retail Excellence supports the management in organizing the turnaround. Following a brief analysis, the experts identify hidden operational and financial potential and receive the assignment of restructuring the company’s buying: brand, private label, fashion, hard goods, seasonal items, never out of stock, concession, special make-ups, core items, buying onto shelf and expansion of the Internet appearance in line with the demands of sales divisions that couldn’t be further apart. “And right away, please  –  breakeven must be achieved.“

Twelve months of intensive work later, the company can see breakeven on the horizon. All sales divisions are on the right track to reach breakeven or even begin turning a profit.
TRE helps:
• Restructure the buying organization
• Enhance the level of expertise among buyers and throughout the buying department
• Boost gross margin
• Improve performance per square meter and per web page
• Streamline processes

Today the group sees the company as best-in-class in many disciplines. Investments in the expansion of the business area are planned, and the company has good chances of becoming market leader in terms of both customer acceptance and overall performance.

From three sales channels to real multichannel

A non-food retailer utilized three sales channels: stores, catalogs and internet. To strengthen its market position on a lasting basis, the company sought to develop into a real multichannel retailer. It wanted to become fully competitive in every sales channel while at the same time offering its customers a consistent shopping experience regardless of the channel or stage of the buying process – from initial consultation and sale to aftersales service.

Team Retail Excellence supported the retailer in sharpening its multichannel strategy and defi ning the organizational and process-related changes necessary to implement the strategy.

The concept includes following core elements:
• Introduction of category management to strengthen assortment expertise across all channels and as a basis for alignment of customer communication (content and timing) in all channels
• Development of the catalog assortment based on the online assortment
• Presentation of the complete conventional store assortment in the online shop
• Harmonization of prices across all sales channels
• Synchronization of all company wide marketing activities via integrated campaign management
• Setup of a central customer relationship management platform responsible for handling all customer information and defining as well as implementing direct marketing measures
• Setup of a staff qualification and change management program

By involving the company’s staff in the concept development process, TRE secured the support of the entire organization. Success drivers in implementation include the cultivation of required functional expertise among employees as well as the realization of change management measures.

Dynamic growth, local retail und efficient supply chain

A jewellery brand based in Central Europe expanded its worldwide sales network by 600 own stores within a few years – with convincing overall results. To execute growth plans at a swift pace, sales organizations in EEA, NA, APAC, EEMEA & LATAM set up their own retail structures, created their own organizations and processes as well as their own merchandise management systems. The sales performance is convincing, with own retail approaching  ¼ of total turnover, yet the company’s overall cost and balance sheet structures have suffered under the 8-year store investment program.

As a number of operational warning signals appear, the fundamental strategic question of whether “all retail is local” is still the right approach is raised. Due to lack of uniform planning and supply chain management, the stores’ sales floor performance begins dropping at a rate of 10% p.a. Overstocking, stock-outs and lead times increase, while the capacity to react swiftly to market changes decreases.

Had the fast expansion come at the cost of supply chain efficiency?

Within less than six man-weeks, TRE and a team of client managers assess the key supply chain processes, organizational structures and selected KPIs and put the existing retail model to the test.

In a two-day executive workshop, case studies and examples of best practices of comparable retail brands are reviewed. Managers and staff form an initial vision of the potential of a restructured retail supply chain. In a further workshop, TRE presents control instruments for efficient supply chain management and helps conceptualize management programs for supply chain excellence.

Over the course of the weeks, we developed:
• A Retail Readiness Assessment
• SWOT documentation and a list of measures for supply chain processes
• A glossary of the main retail KPIs for globally uniform retail control tools
• Detailed descriptions of five supply chain management implementation programs

TRE conservatively estimates the top line sales potential with realization of the proposed programs at € 100m. But possibly more important: TRE votes against a centralized retail management, convinced that the regional/local control of retail supply chains can achieve excellence, provided the regions start to learn from one other and adopt best practices from in-house and other brand retailers.

Bringing together excellent talents for excellent results

A chain grows successfully over the course of decades. With more than 1000 stores, the company generates healthy profits. But its business processes and systems haven’t been adapted in step with the expansion. Its buying and sales floor management are not integrated, an increasing obstacle to productivity in the stores. The organization and its processes are not efficient enough to meet the competitive demands and enable the company to set itself apart from other contenders.

The retailer puts together a team of its most expert decisionmakers to tackle the project, and assigns project management to Team Retail Excellence. The task: reorientation of core business processes. TRE structures the approach, teaches project management techniques, coaches the team members and introduces best practice retail processes. The interdisciplinary project team develops practical solutions and sets up a new process and organization architecture in preparation for the implementation of the new system.

Core elements of the reorientation introduced by TRE:
•  Establishment of buying into sales floor
•  Development of complementary product categories for different retail formulas
• Implementation of assortment planning
• A new understanding of the roles of buying, assortment allocation and sales

After four months of efficient project work, the new concept is established and preparations for implementation completed. The team members gain new strengths from the project: they show themselves and the management what they can accomplish – without a big team of consultants.

The management appreciates the efficient project work and the pragmatic solutions. The system frees up capacity for further expansion. But the most important result: working on the project in addition to their regular tasks, the team members scored a major success for themselves and the company. And the entire organization backs the new solutions.
 

Costumer Service oder Cost Reduction: Why "or"?

A globally operating lifestyle brand opened 400+ stores in different parts of the world in five years. Shrinking sales floor performance and growing retail opex, especially rental and staff cost, cause EBT to drop below 5%. Team Retail Excellence’s managers were asked to improve POS profitability and revise store processes for outlets and full price stores.

The initial four-month turnaround program begins with process retail analysis at four pilot stores in Germany. Together with the area and store managers, TRE tracks 100 typical store processes on site. Findings point out: Too many inventory processes, too much time allocated for administration and highly unsatisfying customer service and merchandise movement. Above all: The execution of all HQ brand and marketing guidelines leaves stores with only 8% of annual staff hours free for customer care.

High brand and marketing demands at POS result in 30% more working hours than in the case of vertical retailer. No wonder store payroll costs reach >20% of sales. Further store checks in the Benelux region, Czech Republic, Italy and UK confirm significant potential for staff mobilization or cost reduction throughout Europe.

In cooperation with sales management, TRE reorganizes processes at the pilot stores. The goal is to measure effectiveness before large-scale rollout to all EEA stores, avoid customer service risks and secure a high visual merchandise standard.

The findings six weeks later: the pilot stores’ figures, including sales, staff hours and quality of retail presentation are convincing.  The stores have the potential to significantly boost their EBIT results, as brand marketing and assortment follow branding and commercial guidelines.

Our projection for the 160 EEA stores: 300,000 staff hours (10% of all working hours) are either dispensable or can be utilized for better customer service.

We coach the rollout in the European stores for 12 more weeks, until all key countries have completed implementation of new processes.
Six months after project completion, TRE is called in to check the results of implementation. Findings:
• 96% implementation of new processes
• 10% reduction of staff hours (within the first six months)
• 1% increase in items per sales slip
• 7% rise in conversion rate

Buying management

A major European retailer has begun restructuring its buying to meet future challenges. The sourcing philosophy “best price beats all,” which enabled the company to become large and successful, reveals its limits. The supplier base is no longer willing to take part in the auction selection process and innovations are increasingly going to competitors. Directors seeks to launch an effective counteroffensive based on a new form of cooperation with strategically important suppliers. The buying department has difficulty implementing the plans.

”We want you to help us help ourselves. And please, leave PowerPoint at home!” –  these are the instructions the Board of Directors gives Team Retail Excellence when work to support the implementation of the sourcing strategy begins in early 2007.

The project takes place in two phases requiring different levels of support. The initial priority is to structure the teams and their projects as well as to coach the project heads. Phase 2 focuses on conceptualizing the supply chain strategy.
The topics addressed include:
• Which buying and sourcing strategy is best suited to our specifi c business model?
• How big are the gaps between current operations and the best practices of comparable retailers in  Europe?
• The economic effects of bypassing sourcing  agents – where does direct sourcing generate  real value?
• With which countries and which suppliers do we want to develop long-term strategic relationships?
• 60% of sourcing in China, with all the related risks – where are there alternatives and what  will it cost in gross margin?
• Should the company‘s own Hong Kong office serve as an “agent” or cost center/extended workbench?
• What are the strategic and financial benefits of buying unfinished goods, e.g. raw materials?
• If we give up the auction process, what alternative means do we have of achieving  excellent buying prices?

The final sourcing strategy is documented in an implementation roadmap.

Value Retail for Russia's consumer

In early 2007, following its success in consumer electronics and toys, an international retail conglomerate in Easter Europe looks into entering fashion. The initial approach, developed internally, fails. Ten years after the opening of the market for western goods, Eastern Europaen consumers are too well informed to be satisfied with a run-of-the-mill fashion offering.

Team Retail Excellence is assigned the tasks of evaluating the existing concept, revising the model and vision, developing a marketing, visual merchandizing and store concept, drawing up a financing plan and designing an implementation strategy for the entire project. A French investor is to be won over as a joint venture partner.

A comprehensive market analysis including 100 detailed store checks and outlet profiles of local competitors confirms that the market has long since reached a stage of intense competition between attractive formats. Zara, Topshop, C&A, Bestseller, Marks & Spencer – practically all significant western fashion retail brands are present, alongside a number of good Russian formats, all vying for the attention of the country’s largely brand-conscious female consumer.

• Fashion brand, fashion discount or fashion  value retail?
• Brand or private label?
• Stores on High Street, at B locations or out of town?
• Ladies’ point or family store?
• Full product offering or niche?
• 200m², 800m² or 3000 m²?
• Own brand or franchise of a western brand?

A series of intensive workshop discussions focusing on the financial and qualitative evaluation of the options leads to a vision of the new format, developed in dialogue with the customer. In cooperation with the design and architecture firm Schwitzke & Partner, the team develops a suitable store concept and a 5-year implementation plan for a competitive fashion value format.

Out of the crisis and into profitability and international expansion

A home deco wholesaler develops its own retail concept. Within a short time it enjoys initial successes with its dynamic expansion into retail. The company’s sales growth and profi ts are excellent, but its familiar wholesale controlling instruments don’t work with retail. The expansion puts downward pressure on productivity, and the new retail business unit burns up capital. In the end, retail – although actually successful – is not financially viable.

Team Retail Excellence takes on an interim management position as Chief Restructuring Offi cer, and works handin-hand with the partners in the family-owned company to develop the fast-action program “Cash” along with a range of other turnaround measures to boost productivity. Old stocks are sold off, and the convincing turnaround program helps the company secure fresh capital.

The controlling instruments implemented by Team Retail Excellence include:

• Multi-year financial planning
• Weekly cash control
• Store profit contribution calculation
• Payback analyses for new branch openings
• Inventory management control
• Seasonally planned buying

Twelve months after Team Retail Excellence began its work, the company returns to the financial breakeven point. Stocks and debts are signifi cantly reduced. Another 12 months on, it achieves a clearly positive EBIT. Team Retail Excellence is now working with the management to develop a strategy for 2011. Expansion of international business plays a key role.

Real Change at last - after 2 consulting projects

An internationally operating womenswear brand with its own stores in various countries including Canada and Russia wants to reorganize its buying. Over the past three years, the management has invested close to one million euros in two consulting projects focused on strategy and collection planning. The projects, conducted by a respected consultancy with experience in the sector, are well received, but implementation just won’t get off the ground. Sales volumes stagnate and the initial markup is stuck at 2.1-fold. Management and staff are becoming increasingly skeptical, and beginning to resist implementation of the strategy. Team Retail Excellence comes on board to reverse this development and ensure that the overdue implementation takes place.

A trained coach and a manager with experience in buying & sourcing begin the project work with personal interviews regarding strategy and the project. They examine the motivation to realize change (intrinsic and extrinsic factors), analyze mindsets and evaluate the capacity and willingness of the management and project staff. An array of coaching tools (such as SKILL/WILL, competency model, GROW model) are deployed.

In the subsequent implementation phase, Team Retail Excellence carries out the following measures:
• Development of a concept for management  programs to implement the strategy
• Development of a framework concept for  project controlling
• Training of project managers
• Coaching of the management throughout  the project development process
• Cultivation of a strong and permanent drive  to implement the strategy

In contrast to previous attempts, staff members strongly identify with the project and its measures within a short time. Six months after the project kickoff, the buying management presents a convincing implementation roadmap to the holding. Its target: a 12–15% reduction in buying costs within two years. More important than all the fi gures calculated and measures planned is the fact that management and staff have pulled together and fought to implement “their” project to boost effi ciency in buying.

Top Service - Lean Operation

A medium-sized fashion retailer in the high-end menswear segment reduces sales staff costs from 19% to 13% following acquisition by an investor. A process optimization program is launched to ensure that customer service remains at a high level. It looks at aspects like individual customer orders, stock transfers and the introduction of merchandise handling teams.

Team Retail Excellence supports the management in conceptualizing and developing the new sales organization and processes. A brief analysis reveals: the stated objectives are feasible  –  and they promise additional sales potential.
The results of our project work:

• Restructured sales organization

• Service level maintained or raised

• Costs signifi cantly reduced

• Processes streamlined

• Enhanced expertise among sales staff

A comprehensive approach is taken to implementation: new processes coordinate sales, buying, logistics and visual merchandising, while workforce scheduling is optimized and staff training measures are introduced. Important changes are implemented within three months of the project launch. As a result of the far-reaching restructuring of activities, the proportion of overall time spent serving customers is increased by 30% – despite a reduction in workforce hours. Beyond the immediate scope of the project, significantly better interlocking of operations throughout the value chain is achieved. Presentation of merchandise on the sales fl oor is noticeably improved.
 

Pricing – unplanned planning

A German company with 130 stores in Germany and other European countries had carried out numerous interrelated management programs, which were showing initial signs of success. Current sales fl uctuations were blamed on the absence of clear pricing structures in the product range, among other factors. As a result, the merchandise management planning was questioned.

The pricing as planned in the purchasing process was checked against market research data. Initial consequences were determined.

In cooperation with a team drawn from the customer’s staff, Team Retail Excellence closely examined the planning mechanisms relevant to pricing structures within the merchandise management system.
Working alongside those responsible for planning, Team Retail Excellence experts analyzed the structures and discussed what they meant in terms of planning. This revealed very detailed and interconnected planning. In pricing planning, however, there was insufficient transfer of target fi gures into actual practice. The prices were established as part of sales planning, yet were not validated in the goods intake process. Team Retail Excellence demonstrated the risks this involved.
In the weeks that followed, Team Retail Excellence developed a pricing tool able to:

•  Handle the transfer of merchandise from goods intake to the sales according to expected sales volumes
•  Integrate markups and markdowns
•  Control end-of-season stock quotas
 

For the first time, this tool enabled purchasing to determine the feasibility of the pricing structure, compare it with independent market research data and thus verify the collection. At the same time, both merchandise management and purchasing recognized how the planning framework interconnects their respective functions and how their defi ned KPIs depend on each other.  

The most valuable outcome was the tool’s acceptance on all levels (planning, purchasing, sales) and its permanent integration into planning.

Calendar management – a date for every process

An international retail chain with over 700 stores had grown continuously in past years. The company gained good profi ts. At the same time, its existing purchasing and merchandizing processes, which were divided into centralized and decentralized areas of responsibility, revealed too many interfaces and involved parties to be fl exible – a key requirement in achieving the retailer’s plans to introduce new collections at an accelerated pace.

Team Retail Excellence supported the management in designing optimized and centralized processes. In several phases of interviews, observation of existing processes, creativity workshops and capacity planning, target processes were developed. Notably, a 45% reduction of interfaces led to a signifi cant improvement in process complexity. The approach was an iterative development process, always in cooperation with the customer’s project team. But the biggest obstacle was the process of transforming theoretical target processes into operational day-to-day work.

The following approaches were used in the transformation process:

•  Planning of activities in a 52-calendar-week timeline
•  Identification of core activities
•  Establishment of a milestone calendar
•  Continuous testing of the calendar
•  Development of a 365-day calendar with fixed times and participants, taking into account tradeshows, events, travel etc.

In this context, external and internal factors like new supplier structures, new pacing of collection launches and longer sourcing times led to several redesigns and adaptations of the target process calendar.
The theory defined at the beginning was translated into a real-life planner – developed in purchasing. Its transfer into practical use led to immediate implementation of the target processes and broad acceptance within the company. In addition, all staff members were given a clear overview of the effects and interactions of the processes.

Allocation management – don’t invest, optimize

A successful, vertically structured fashion retailer suspected that its allocation management process was not fully realizing its stores’ sales and profi t potential. For this reason, the company planned to change its allocation management to push/pull. Before finalizing the decision, the management wanted to have a further, intensive check of the plan carried out. It asked Team Retail Excellence for support in deciding whether or not to implement push/pull.

Together with a small but strong project team drawn from the customer’s staff, Team Retail Excellence examined the existing allocation management and discussed joint data analyses. Following two intensive workshops, the project team reached the conclusion that a push/pull system was not the optimum solution – quite the opposite, as it would signifi cantly increase the complexity of the retailer’s merchandise management.

In addition, it was recognized that there were many different possibilities for optimizing the existing allocation management system, representing a potential sales boost of 2m and a 0.5m reduction in process costs. Stock transfer could be reduced by 40%.
Team Retail Excellence supported the customer’s project team in jointly defi ning optimization measures and getting the merchandise management processes fit for the future.
This took place in four steps:

•  Establishment of a basis
•  Focused review of the status quo
•  Target process workshop
•  Planning of measures

The goal set, to enable the customer team to develop and implement process optimization measures independently, was achieved. The solutions developed were made part of day-to-day work and successively implemented according to predetermined priorities.