Brand Retail – Know your DNA!

Norbert Pühringer & Guido Schild

Imagine you are the CFO or Finance Director of a successful wholesale brand – perhaps one that sells home products, or toys, or BBQ grills – and you have a portfolio of more than 40 own and partner stores. Retail DNAYou are market leader in your segment, but in the global retail arena still a small player. Previous forays into retail show mixed store P&Ls, but you can´t really “read” why sometimes it works and sometimes it doesn’t. We’d bet that you and the Retail team analyze maybe 20+ KPIs – and every year you’re given new answers: “it’s the product”, “it’s about location”, “it’s mostly down to customer service, “…..everyone you talk to has a different perspective – and even those change. But the bare truth is, as a rule, Retail cannot explain the magic formula,… yet they will ask for more expansion investments next year.

Retail is Mathematics

Would you believe there is a „Retail DNA“, and that retail productivity is simple mathematics? Over the years we have analyzed local and global retail portfolios, and we have developed expansion strategies and growth programs for many brands. From this background we have learned that less than 10 ingredients determine a brand´s unique retail DNA. This DNA tells us for example, whether the brand can afford to pay high street rents of € 80/m²; or if it’s a destination brand or if it needs to highjack other retailers‘ traffic; the right adjacencies (“retail neighbors”) to have; minimum location traffic to get to target sales; and how to identify whether the sales target for a new location is correct.

Take as an example a premium home interior brand. Coming from a strong home market positioning, retail expansion overseas was defined as a strategic priority to become the #1 premium global lifestyle brand in its sector. However, even after 10 years of retail experience the portfolio of stores does not show the necessary profitability to be ready for expansion.

Understand your DNA

As with many brand companies, retail business is a shared responsibility of the central retail division and the local sales organization. Product & Visual Merchandising is essential for Brand Managers, whereas the local organization focuses on sales and cost efficiency. However, store P&Ls are poor overall, and inconsistent. There are more than 10 explanations why some store work others don´t. The portfolio ranges from 70 to 300 m2, located in a1 to b2 locations, and showing conversion rates of 7% to 67% … with one common pattern: in every location Brand Management tries something new. Shops struggle to recover costs – maybe because sales volume is too low, or because rent and/or personnel costs are too high. We have seen many similar patterns before, but every case is unique.

A thorough analysis of the store portfolio (including location assessments and store checks) extracts an interesting DNA: Premium brand, low consumer awareness, narrow but affluent customer segments, high but declining customer loyalty over time, high average ticket values, but a classic “ice cream store problem” (just 3 months determine the profits). Distilling the DNA of different store P&Ls, identifying the patterns which drive P&L – we developed recommendations on how to rework the retail model. One key finding: don´t go to premium high street, instead invest in local direct consumer marketing.

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Every DNA is different

Every brand’s DNA is unique, but the level of competition for the „best“ high street locations indicates expansion managers believe they all need the same. Brands often have an ambition to copy-paste other brands when it comes to retail instead of defining its unique ingredients of a successful direct consumer business. Our home interior brand needed to focus on consumer experience instead of location excellence. It must invest in excellent story-telling, sales performance and direct to consumer marketing to create a desire to visit the store regularly. In opposite to H&M or Zara, saving costs on personnel would damage the brand, and very quickly erode the top line of the store P&L.

Is Retail only mathematics? Definitively not: the quality of the organization, the evolution of processes, tools and most important people! Retail born managers and Brand Retail managers make a difference. But regardless where managers have developed their skills (at successful brands or retailers) it is most important that they can read your Brand Retail DNA, using that to create a sustainable business model – and not just importing what worked at their last employer.

Norbert Pühringer & Guido Schild

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Kategorien: English, Strategie

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  1. Conversion Rates in Saudi Arabia are 5 days late | retail intrapreneur - 1. September 2014

    […] It is common retail sense conversion rates vary, from location to location. A store in a train station, with mainly commuters in a rushing “need-to shop-mode”, likely has higher conversion rates (CR) than the same store at an airport, with mainly tourist in “waiting to board mode”. Good, if you know the “appropriate” store KPI for your locations. […]

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