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In a retail business, the moment of truth occurs in the store. This is a known fact, and yet, retail stores often fail on the most basic things that make customers come to the store for their purchases.
This whitepaper presents the key elements that ought to be in place in order to increase sales and profitability through improved store performance. Effective daily management enables stores to tackle the issues appropriately and to take immediate actions to handle them.
Insight | Perspective
Introduction
In a retail business, the moment of truth occurs in the store. This is a known fact, and yet, retail stores often fail on the most basic things that make customers come to the store for their purchases. In a chain operated retail company, the chain can provide the store manager with tools, standards and guidance in order to run their stores in a way that ensures customer satisfaction and increased sales. However, what makes a store successful depends on how you make best use of, and implement these tools and routines, together with the skills of the store manager. This whitepaper presents the key elements that ought to be in place in order to increase sales and profitability through improved store performance. Effective daily management enables stores to tackle the issues appropriately and to take immediate actions to handle them.
Shrink
Shrink is a constant issue in all retail companies and caused mainly by theft, suppliers actions and pricing and process failures (see image 1). Process failures include; mistakes in handling the product when stocking and shelving goods, or failures in ordering, forecasting and shelving processes. Some of the consequences of shrink are lost margin and out-of-stocks. Key management focus can help immediately reduce shrink by providing tools and processes to manage replenishment and goods flow processes in store and thus reducing process failures.
Out-of-stock
Incorrect stock levels confuse replenishment systems and help create out-of-stock. Other reasons include stocking and warehousing problems, management errors and problems in manufacturer availability (see image 2). Out-of-stock directly effect customer satisfaction and sales. When a product is not available on a shelf, many customers go to another store to purchase (see image 3). By effective management, most of the reasons for out-of-stock can be minimized.
As described, problems in stores are the result of a number of factors. The key to this lies with the daily usage of tools and routines underpinned by active store management. To ensure management by facts rather than opinion, certain traits are required. An analytical mindset, combined with an action-focused management style can help improve store performance. Analyzing KPIs and taking actions based on performance, using simple daily management tools systematically, communicating efficiently, clear roles and responsibilities and using the right kind of control tools are all proven methods to help improve performance when implemented and utilized in the right way.
should be on immediate corrective actions that have an impact on store performance and on following-up on these actions. It is also important to analyze how the executed actions have influenced the daily KPIs.
Effective meetings
Store Managers need to manage their stores in an effective manner to optimize performance. Internal meetings should focus on the drivers of performance and customer experience to ensure performance is optimized. A clear focus on improvement actions, and usage of basic Action Logs will ensure systematic follow up of potential performance issues. Above all else this will support and drive the correct behaviors that will ensure continuous improvement. Effective meetings and meeting structure enable efficient communication flow within a store and within the whole organization. Standardized meetings ensure that the right topics are covered in the right forums and that the right people are part of the decision making process. Meetings should focus on actions that have an influence on store performance and these actions should be followed-up systematically. Critical operational information should be shared at the store floor level on a daily basis. Daily information, KPIs and needed actions within the departments should be shared in an efficient way so that it reaches all floor level employees in the store.
In a retail chain, it is essential that all the stores provide customers a similar shopping experience; the store appearance meets the same standards, merchandizing follows the same principles, assortment is mainly the same, pricing is aligned, etc. To make sure that all stores meet the same standards within the chain, frequent outside store visits are important. Regional or format managers store visits are more controlling ones that concentrate on a stores business results and making sure the store meets the standards of the format. The other type of visit is for efficient communication and knowledge sharing between category management and stores. These visits are important to secure optimized assortment, pricing and campaigns with aligned objectives.
Image 6. Improvement in sales per man hour during a nine months OpEx programme.
+15%
Conclusion
Stores need a structured and systematic way to manage the daily business, which is linked to the stores overall management system. Stores are facing challenges every day that need to be solved with immediate corrective actions in order to offer its customers a good shopping experience. Stores that are able to shift the management focus from a weekly and monthly level to a daily level have much better possibilities to improve their performance and further improve their position in markets. Daily follow up of KPIs, an action-focused approach that is based on store performance, efficient daily routines and tools, efficient communication flow, clear roles and responsibilities, and systematic follow-up from the chain build a structured way of managing the daily business. It is important to keep in mind that the above mentioned key elements of stores daily management, work closely together and should not be considered separately. Without following KPIs on a daily level, you cannot be sure if the actions you have taken have a positive effect on store performance. Further, without an efficient communication flow, issues might not get solved before they cause problems in a stores profitability. Therefore all the elements are equally important and together they build a system, where all the elements are tightly linked with each other.
Sample Results
BearingPoint has helped a number of leading retail companies with large operational excellence (OpEx) programs to improve store performance with the key elements presented in this whitepaper. Results indicate measurable improvements when the right combination of elements is tailored to each companys specific needs and culture and implemented through BearingPoints unique hands-on approach. Image 8. Decrease in write offs during a four months OpEx programme
-20%
Metrics indicate clear improvements in sales, sales per manhour, number of customers, shrink, gross margin as well as in stock levels and stock days. This can be seen as a result of the right combination of key management elements implemented in a correct and sustainable way. In the following, a few quantitative examples of results are presented. On average, stores with new management elements have shown a 16 % increase in sales (see image 5) and a 15% in number of customers and sales per manhour (see image 6). General sales growth can be seen as a result of a combination of all key elements. Growth in sales per manhour is mainly a result of a combination of sales, workforce planning, general awareness of employees, motivational management and increased add-on sales. In one of the OpEx programs, BearingPoint helped a retail client to improve goods flow in stores. By the end of the four month engagement, improvements had been implemented to some 50 locations and significant results achieved in terms of reduced stock and increased stock turnover, together with increased employee efficiency and reduced write-offs (see chart 7 and 8). A key success factor for the engagement was the implementation of a store management system to control the store goods flow. The new
management system enabled the stores, not only to execute new goods flow routines, but also to manage all store related activities with better quality, and to control the improved performance through aligned KPIs.
Authors:
Jari Laine, Senior Manager
Jari is a leader of retail practice in Helsinki office. He has considerable experience from operational excellence programs in retail industry.
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