Full speed ahead for full price retail

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Full speed ahead for full price retail

Donnerstag, 1. Oktober 2015

Isn’t brand distribution in 2015 great? Ten potential distribution channels, 30+ truly big, attractive countries, equalling 300+ options to grow your brand. And the biggest challenge: where to start and how to focus before getting too diverse.

With so many growth opportunities on hand, no wonder the growth strategy brands favour most is to go with the opportunities – which explains why so many European midmarket brands are powerhouses at home, but fail to gain a meaningful share in Europe’s top 6 countries (accounting for 70% of European retail sales). In other words, why target the big UK market with concession stores when wholesale distribution in little Austria is so much easier? Why grow full-price retail stores when outlets are so much more financially rewarding? For many years this opportunistic approach was smart, low-cost and low-risk.

 

Opportunistic growth means losing competitiveness

It was not even ten years ago that Tesco was hailed as a master of global best practice in international growth, and its great CEO Sir Terry Leahy commented: “I know 100 plus countries to grow before I will enter the competitive German market”. He went the opportunistic way and expanded into markets such as Czech Republic, Hungary and Thailand. Unfortunately for Tesco, the competitive German discount retailers came to UK, and Tesco is losing market share and much more.

Wouldn’t the Tesco story be a valuable story to teach our children when they face their first challenges? Something like, “You can run away from a challenge, but you can’t expect the challenge to run away from you“. You can escape expensive high streets, but don’t be surprised if your competitors take advantage of your absence. Staying competitive means growing your capacity for high-street performance.

 

High-street retail is not the Olympics

It was in the 1980s that most brands opened their first full-price high-street stores, explaining that they “... just wanted to show consumers the full brand range ...” and “... didn’t have plans to build more stores.” Thirty years later, the segment has grown up, and Europe’s brands operate more than 50,000 full-price stores. But one thing hasn’t changed: the majority brands don’t make a full commitment to full-price retail and “hide” their high-street performance in total retail figures, mixing highly profitable outlets with mediocre high-street stores.

About three times per year, we are given the task of reviewing and reworking global brand distribution strategies, wholesale and retail. And when we test high-street readiness of full-price stores, we see a common response across the globe in many brand organisations: “We operate high-street stores mainly for branding purpose”.

Wake up! This is global brand distribution in 2015, brand retail has grown up and after 30 years you are still nursing high-street showrooms? High-street retail is not the Olympics, where participating is everything. It is costly and needs to generate paybacks like any other distribution channel if you want to stay competitive. Isn’t the true reason for your high-street underperformance your level of ambition?

 

Full-price retail pays – provided you go for it

If you want to change your high-street position, now is a good time to make a commitment. Traffic in secondary locations is dropping, the number of international brands entering your home market is picking up and Internet pure players have only just started offline retail. Becoming successful in high streets is all about training productivity. Just because your current high-street stores have low profits doesn’t mean they can’t be 5–10% percentage points more profitable and achieve good investment paybacks. But you have to set yourself realistic targets.

We know many managers demand that full-price stores achieve the same profits as wholesale or drop the distribution channel altogether. Well, do you drop wholesale key accounts when their market power forces you to lower profits? Brands will block important distribution channels and miss the high streets frequented by affluent consumers if they expect all distribution channels to achieve the same profits as wholesale. Growing different customer groups and distribution channels means building the right mix of growth and profitability. Consider each of your distribution channels in terms of golf handicaps. As in golf, set goals relative to your current capacities, allow time to improve, but create a competition between your channels. Some channels are strategic investments, need time to grow profitability, some are cash cows.

 

Want a high-street performance culture? Develop a fitness programme.

When you launch your own high-street success initiative, throw away your past strategy: cutting personal cost and getting a cheap location is not the path to long-term competitiveness. Investment in excellent location and people is. And you need productivity programmes – because you can’t improve fitness without sufficient training.

Having managed L4L programmes in retail for a long list of different brands and retailers, we have counted more than ten levers to influence L4L in the short term. But on a long-term and strategic basis, four programmes make the difference in a brand’s full-price fitness.

 

1. Effective retail marketing: Brands spend a good 5% of sales for branding & marketing, and build strong consumer positions. But when it comes to generating regular store traffic, brand marketing is at best mediocre. Discounts are the favourite, and often only, traffic-generating tool.

  •  If your brand marketing targets the retail market, and you aim at store traffic improvements, measure and improve the effectiveness of your campaigns and you have a chance to win on high street.

2. Effective visual merchandising: Paying rent for a high-street store is paying for a 10-meter “billboard” that is seen by 5m+ visitors p.a. Consider that more than 50% of high-street shopping is impulse buying: most store visitors didn’t know they will enter the shop minutes before they do so, so windows and visual merchandising (VM) are key sales drivers.

  •  If you mentally reclassify your high-street rents of €10m+ as “billboard costs” and start focusing the effectiveness of your windows and in-store VM, you can create a lasting sales increase.

3. Merchandise management: Brands have two to six fresh merchandise intakes into their stores per season, which they try to sell by the end of the season. Leftovers go to the outlet. Vertical retailers have the same sequence of intakes, but focus on selling everything within a short timeframe and react immediately with discounts and other means if sales are lower than planned.

  •  If you manage your merchandise proactively and start focusing on sell-through, your merchandise performance becomes competitive on high street – for CFOs and consumers.

4. Store operations management: Sales/m², share of part-time workers, sales per staff working hour etc. – tell us your KPIs and we’ll tell you whether you focusing on the right things to win on high street. Show us the spreadsheet of store KPIs and we’ll tell you whether you’re managing store operations.

  •  If you change the focus of your KPIs and start to manage performance, you can drive your high street fitness.

 

Full-speed ahead for full-price stores

You can hide your retail success behind a 70% outlet sales share. You can report your L4L sales including online sales. You can grow D2C sales without commitment to full-price retail, but you cannot hide from the manager you see every morning in the mirror – the one who knows that running away from full-price retail is a strategy for softies. Change your commitment, change your reporting, focus investment paybacks and make a public commitment to your strategic high-street goals. Stop being so pragmatic, show some guts, rise to the challenge, work on your competitiveness and classify high streets as the must win, the strategic Champions League among distribution channels.

Kategorie: 
Vertriebsmanagement
Tags: 
Performance Management
Retail Stories