Posted in Future, General, Productivity, Strategy

Just get out my $%#ng# way

The Wollongong and Shellharbour councils had been disbanded a few years ago due to gross incompetence and the first elections in some time to create newly elected councils are in the ‘promise-the-world-until-you-are-in-power’ phase. Occasionally I catch a bit of this dribble on the local ABC radio and the papers.

Coincidentally, BlueScope has recently announced the retrenchment of 1000 workers.

The result is predictable. Every candidate is promising job-creation for the Illawarra. There is plenty of rhetoric about how every candidate will lobby, cajole, convince, and empower the AAA, the BBB, the ZYX Federation, Council, Association, Alliance et al to create jobs in the Illawarra.

I never swear (badly) on this blog. But if there is anything that would make me break that rule then it is this topic.

The ONLY people who can actually create jobs are ENTREPRENEURS.

All of the aforementioned and most other organisations know how to spend money researching and talking about it, but they cannot ACTUALLY create jobs.

Just entrepreneurs can.

(On a side note: It is this kind of delusional thinking that led Governments to bail out failing companies by transferring their debt to the citizens. They are playing God in the economic sphere instead of just getting out of the way.)

Whilst the BlueScope retrenchments will create heartbreak on the individual level, and I do not want to diminish their pain, there are a few other perspectives to consider:

  • I do wonder if the unions, who have insisted on 5% increases year on year on year on year take any responsibility for making BlueSope internationally uncompetitive?
  • I wonder if the proponents of a minimum wage accept any responsibility for making Australia uncompetitive?
  • I wonder if the ‘workers’ who seem to focus on their ‘entitlements’ have thought about their obligations?
  • I wonder if politicians and workers have ever thought about the PAIN and the RESPONSIBILITY that the entrepreneur feels when they go about creating those jobs that everyone seems to demand – until they have them; only to then complain how it is not good enough.

In the business climate that exists in Australia, I certainly don’t want to be an employer. I find it hard to stomach the culture of entitlement from workers and the oppressive legislative regime.

The argument that we won’t allow slave labour in Australia is a furphy rolled out by anti-capitalist, anti-entrepreneurial sorts as a scare tactic. I am willing to put a lot of money on the fact that the market-rate for wages would be not very dissimilar to what it is now. The difference is that the current regime adds additional responsibilities of the employer that significantly increases the cost of employment. And in addition, the death kiss is the concomitant, increasing inflexibility that becomes part of your business with every additional employee.

I realise it may hard for people to imagine the alternative if you are raised in the current regime, but consider a few examples:

  • What is the rationale for a government legislate that the EMPLOYER (in my case the individual ME) should pay a nominated superannuation fee and NOT put that obligation on the individual? Why must the employer be responsible for the prudent financial management of your retirement – and not the employee?
  • Why must the employer pay the taxes and not the employee?
  • Why can’t the employee be expected to insure themselves against accidents?

I think the point is made.

FIXING this problem is important.

There are two considerations:

Firstly, climate change proponents are probably prone to exaggeration (who really knows) – but if they are even half-right, we will be living in a shit-hole in a few decades.

The bottom-line of the climate change debate is this: GROWTH as we know it is over. The world cannot support growth at the rate that it has grown in the past. (Jeff Jarvis wrote an interesting post on the “jobless future”.)

Secondly, I believe we are migrating to a new economic structure. I don’t (and no one really does) know what it will look like.

I think that will be an environment where only the nimble and flexible will survive.

I think companies will be smaller – with many more solo businesses.

But what I know is that Australian business environment is not future-proof. And THAT will be the single biggest factor limiting Australia’ survival and our place in the world economic-pecking order.

The culture we have harks back to an industrial era where ‘industrial relations’ were probably necessary. But in the world we live in now, the same principles don’t apply. Workers in that era were different. The modern era means:

  • Workers can communicate instantly with each other and establish what is fair and what is unfair.
  • Workers are mobile and can move their skills anywhere at anytime.
  • The balance of power (in the age of Intellectual Property) lies with the employee – not the employer.
  • Employees can and do take responsibility for their own training because the skills required for economic success are not dictated (or resourced and controlled) by employers.

It just does not make sense to punish entrepreneurs with a restrictive employment regime when exploitation is not viable or available anyway.

If wannabe councillors/ politicians want to really help, they should get out of the way. I am not advocating anarchy or that businesses or entrepreneur are above the law.

What I AM asking governments/councils to do is change their attitudes. The prevailing approach (apparently entrenched in the culture of these organisations) is to look at every business, at every attempt to develop or grow something from the perspective of ‘what is wrong with this proposal.’

If they could change their approach to ‘how can we help make it happen’ then the entrepreneurs have all the help they need. Real entrepreneurs can make anything happen (e.g. raising capital when rates are not favourable) but they can’t break the law and these politicians ARE the law.

Such an attitude shift would be a big challenge in itself, but that is all we require.

Thank you. Sorry for the rant. Let’s save Australia.

Posted in Merchandising, Productivity, Retail Operations

Back to Basics Visual Merchandising

Everything you need to know about visual merchandising is in this one picture.

 

 

Photo credit: Marcus Gibson. The photo was taken up in the mountains, near an extinct volcano and an artisan village Batur, Indonesia. I saw it on hois Facebook page, and he was kind enough to allow me to use it.

  • It tells a STORY: we are in the fresh fruit business.
  • Each product (category) is distinguishable – no visual noise.
  • The product is ‘framed’ by blue material cover – without unnecessary signage or lifestyle imagery that would just create visual clutter.
  • Every display has a focal point.
  • The displays are neat and tidy.
  • The products are displayed as it would be used/ consumed.
  • The products are hygienic – as well as the environment – especially considering the location.
  • They use lines (pyramidal shapes) to lead your visual inspection and give your eye an easy entry point.
  • They use colour to contrast adjacencies – and colour-coordination of the pots in the front row.
  • They use rhythm (pineapple basket +4 others in a row, as well colours repeating)
  • There is balance (6-5-6). And simply ‘join the dots’ by drawing an imaginary line from the blue pot in the middle row left to the other blue pots.
  • Best use of available light.
  • Accessible and convenient to shop. Most items on the top shelf (less accessible) are back-up stock, which add to the presentation, but still allows efficient service – and nothing on the floor.

Of course I am taking artistic license to say ‘everything’ you need to know. But I am sure you ‘get the picture’ (pun intended) and I would even go so far as to say that NOT having the price points there, gives the owner of the stall an opportunity to engage with customers because there wouldn’t be much else to discuss.

Good merchandising is not hard. Despite what some experts may say, it ONLY has to make sense for the customer – and move your stock. You can use your instincts and common sense to achieve this- just like this peasant in a remote Balinese village simply get these basics right.

There is a critical role that a designer plays in translating a business model into a retail experience. But keeping your merchandise organised and clean (= shoppable) isn’t that role.

Most retailers simply get lazy and allow ‘merchandise creep’ to overpower the original design by allowing a plethora of spinners, and dump-bins to be progressively bastardise any attempt at effective visual communication.

PS: To get some confidence and an insight into smart, pragmatic approach to visual merchandising, GO HERE.

 

 

 

Posted in Management, People, Productivity

Fiddle

When I say to people that it does not matter what you do, but that you do, they look at me as if I have broccoli in my teeth.

Every entrepreneur must go through the stage where they have to step up to managing people as part of their growth curve. Usually this causes some discomfort to all but the most natural people managers.

When it comes to people management, there is a lot of advice around. The problem is that it is usually contradictory as you find out when you dig deep enough or have been around long enough.

Not to worry; the reality is that it does not matter what you do, just that you do.

Just fiddle, that is.

The ‘Hawthorne Effect’ is what happens when people improve or modify an aspect of their behaviour simply in response to the fact that they are being studied. That is, they change because they are being studied.

The term was coined in 1950 by Henry Landsberger when reviewing experiments conducted earlier at the Hawthorne Works by Elton Mayo (image) to see if its workers would become more productive in higher or lower levels of light. The workers’ productivity seemed to improve when changes were made and slumped when the study was concluded. It did not matter whether the lighting was better or worse, their productivity went up.

So it is with managing people. As long as you are showing them some love – fiddle with the structure, fiddle with the benefits, fiddle with the staff uniforms – any kind of fiddling really, they feel happy – or at least happier.

Companies go through natural cycles; centralisation, decentralisation or diversification and then focus on the core business. (See what I mean by contradictions?) There is always an argument to be had for the opposite of the status quo, so companies use this to effect changes – which will usually work – at least in the short term.

Switch on the lights, switch off the lights.

Just show that you care.

That is the basic rule of management.

Posted in Management, Marketing, Productivity

The Masterchef Performance Equation

Business is simple. The process is clear and hasn’t changed for a long time – if ever.

But business is hard too. Or maybe we are just stupid – it seems that we have to keep learning the same lessons over and over.

 

 

Where we seem to go wrong is our focus on the outcome or the output. I like using the analogy of a cake. If you can imagine that producing a cake is the same process as producing any other outcome. By the same token, if that particular piece of cake tastes like s*#t, then you know you can’t fix it.

But if you produce an acceptable ‘outcome’ in your business (e.g. poor profits that also taste like s….) then managers obsess about the profit.

How often have you heard a CEO proclaim that they have some major issues/challenges such as low profits or small market shares?

Compare this to the Oracle of Omaha… Warren Buffett.

Mary Buffett (wife) spoke to Forbes.com about Warren Buffett’s and was asked:

What’s the most important lesson you’ve learned from Warren Buffett? 

Mary Buffett answered: “Patience and discipline. And doing something you love. So many people–and Warren has said this–are doing it for the money. That’s really not the right reason. If you’re doing something you love, you’re more likely to put your all into it, and that generally equates to making money.”

He is not the first to say it. I am not the first to say it. Neither of us are the only ones to say it. YOU may have even said. And even believed it.

But the question is: Have you acted on it?

You see, Warren Buffett identified the processes (patience/discipline/doing your love) as the key; not the output (money).

Managers are fond of claiming how ‘results-orientated’ they are. It makes me shudder. Whilst I believe you should measure the results, systematically so, the focus then needs to move on to the processes.

When we discuss mystery shopping services with clients, they often focus excessively on the ‘results’ and how the results can be used to incentivise or punish employees. And often they don’t want to put the time into designing the customer experience (the ingredients) and skilling the people to be able to deliver that experience.

Others get excited about the process, initially, but when it comes to the doing bit, they run out steam.

Measuring your customer service, you market share, or your brand awareness is of very limited value unless you go back and bake a different cake. Which is not much fun if you have to do it over and over an over.

But if you believe Warren Buffett, that is the only way. And since you are going to do it over and over and over; best to make sure you like, really like, it a lot.

 

 

 

Posted in Customer Service, Design & Display, Productivity, Shopper Marketing

Invisible dollars: Or the Art of Retailing

Where the material ends, art begins. 


This is a quote by Etienne Hajdu, and it reflects his view on sculpting. Retail too, is an art, and we are inclined to forget that sometimes.

Sometimes it is what is NOT there that makes a retail experience memorable. In fact maybe, as alluded in the title, that is really what retail is all about.

In retail we focus on getting the offer right, on getting the prices right and so forth. We focus on the ‘what IS’ to the exclusion of ‘what is NOT’.

By this I mean we consider all the variables of retail and we attempt to manipulate that into something that is unique.

When people buy a product or a service, they do not only pay with money, they pay with many ‘invisible dollars’:

  • ·        They invest their very precious time
  • ·        They risk their reputation
  • ·        The opportunity cost of not pursuing a different product/outcome

Forgetting these invisible payments can cost us dearly.

Similarly, the retailer pays with those same invisible dollars (i.e. indirect costs) for the products. We don’t factor the opportunity cost of the working capital, the risk of obsolescence and damage into our cost of sales.

Forgetting these ‘invisible costs’ can cost us dearly.

But more importantly, how can you improve the customer experience by taking things away rather than adding it? It is human nature to want to add/grow/improve and it does not come naturally to prune or backburn.

We have found that we have to build these checkpoints into our Customer Experience Design initiatives by conscious effort to make sure we keep things simple and that we remember the value of the unseen.

Because, more often than we would care to admit, getting out the way of the customer is more valuable than the alternative.

 

Posted in Management, People, Productivity

The perfect retail employee: works hard, for free!

Here is some research that brings some really bad news. But I will also give you some good news. (The research has been conducted by him! research and consulting.)

Three categories (lotteries, magazines and newspapers) are in 76% of shopping baskets. 
Average visit frequency is 1.6 (with the lottery shopper at 1.9 times, the real figure is worse) and this is well below the other convenience channels 
Average items purchased = 1.75 with almost 60% buying one item only. 
81% of shoppers were not aware of any promotional messages 

Each of these messages is bad news. The good news is: it can be fixed. Read on. 

Is this employee not your favourite employee too? Meet the silent salesman that works (maybe) at every newsagent for free: Mr Merchandise.

In some newsagencies, Mr Merchandise sits around all day. Are you putting him to work in your business?

Here is one simple strategy that you can use to put Mr Merchandise to work: Cross Merchandise.

That is; put associated and related products together. There are 3 types of cross merchandising that you may apply.

1. Inter-category: Associated product with some of your core products.

Example: Ribbons with gift bags

2. Intra-category: Related products paired within a category, usually slower sellers or new sellers with your hot items.

Example: The belts with the dresses

3. Trade partners: Introducing an item that is NOT usually carried with one of your core sellers.

Example: Accessories from the local Jeweller with your Bag.


Of course you know all that, right? But with thousands of possible combinations, do you exploit them all – consistently? Probably not.

The list is too long for me to generate one here, so here is better idea: Make a template for your staff to generate ideas of products that can be paired together as cross merchandising opportunities.


In this image you can see how I used a matrix to pair products. It would be impossible to list the thousands of SKUs, but identify the key categories as follows: 


List the core products that sell well week in and week out. Then identify the range of products that:

  • you want to promote
  • have high margins but don’t sell well
  • are new
  • don’t sell well and are ‘last chance’
  • special offers (buy-in or tie-in stock including consignment)

Mix them up and list them along the X and the Y axes on your template. Evaluate every cell.

TIP: Do several of them and allocate one to every staff member and ask them for their ideas and views. You may just be surprised.)  

 

 

 

Posted in Finance, General, Merchandising, Productivity

Make more profit

I have posted a new post HERE that shows you how to calculate the optimum price for a product, assuming you have the cost price and one other piece of information.

Isn’t that fantastic?  And it is easy too.

But you aren’t going to read about it here. You will have to go to the link and renew your subscription by dropping your email in the box or clicking on the RSS feed.

Look forward to seeing you there…

Thanks

Dennis

Posted in Finance, General, Productivity

Make money out of nothing

FIFO is of course opposed to LIFO. That is: First In First Out <> Last In First Out – and these are methodologies valuing your inventory.

The latter of course relates to how you choose to value your inventory. I would not know for sure, but I guess many independent retailers would rely on their accountant to make the decision about how their inventory is valued.

You may argue that you trust your accountant, but do you also trust the accountant of the person whose business you might be buying? Or do you understand how it may impact your own business valuation?

Consider a scenario where a retailer sells only one product: say exclusive watches.

Under both scenarios, you sell 100 watches at $10,000 each.

You start the year with 40 watches in stock and they were purchased (and are valued) at $4,000 each.

During the year, you purchase 100 watches (to maintain stock levels), so you end the year again with 40 watches in stock. (I know it is unrealistic, but I do this to keep it simple.)

But these purchases are made at the following prices:

  • Purchase #1: 50 watches $4,500.
  • Purchase #2: 50 watches at $5,000.

You don’t change your prices because there is a new competitor and you need to maintain price parity.

The difference between the two scenarios is simply that you have a choice as to whether your ending inventory is valued at $4,500 ea (LIFO) or $5,000 ea (FIFO).

If you remember this, you will always remember the difference:

If you adopt FIFO, then it means that the GOODS SOLD FIRST = the cheap(er) stuff.First In First Out

FIFO therefore means that the remaining stock is at the HIGHER price, resulting in LOWER Cost of sales. (Lower COS = sold the cheaper stock = higher GM.)

If you adopt LIFO, then it means that the GOODS SOLD FIRST = the more expensive stuff.

LIFO therefore means that the remaining stock is at the LOWER price, resulting in HIGHER Cost of Sales. (Higher COS = sold the cheaper stock = lower GM.)

Consider the following diagrams to visually understand what the difference between FIFO and LIFO is.

Graphic for LIFO FIFO

[In the real world of course your ending inventory may be ‘weighted’. Your purchasing cycle may have been different and if you purchased 80 watches at $4,500 and only 20 at $5,000 your ending inventory under FIFO would be: 40 watches, valued at (20 x $5000) PLUS 20 x ($4,500) = $190,000.]

table

During high-inflation periods you would want to use LIFO because you want to match your costs to your prices. But FIFO results in ‘inventory profits’ and this should be considered when you are buying a business. (Your current/ replacement stock will result in lower profit when you have to buy at the higher price and can’t match that with a price increase.)

Higher profits may seem desirable, but it also means higher tax.

Footnote: *Under International Accounting Standards LIFO was disallowed, but then, not everyone complies. But I also understand that it is under appeal. Ask your accountant what the status is in your industry/sector in Australia.

PS

After all this hard this tough reading, I would like to ask you a favour: Can you check THIS out: – please? It is a DRAFT of my brand new website.

I love technology, so I tried a DIY job – which is amazing if you consider the fact that I know zero HTML or any kind of programming. Even more amazing is the Cost. (I will share it with you if you are interested.)

As an extra incentive & reward, there is a NEW post there about Variable Pricing strategies that you can’t get anywhere else…

Thanks & looking forward to your feedback.

Posted in Management, Marketing, Productivity, Retail Operations

The essential relationship in retail

Seth Godin has written another best seller – Linchpin – and this post has nothing to do with his ideas. Except that I want to poach his idea of a ‘linchpin’ as some a small but essential/ indispensable item.

I was thinking about linchpin in the context of learning about retail/ marketing. (I am a retail trainer by trade after all.) I started a Master of Retail class at University of Wollongong as an adjunct lecturer – my way of giving back – and afterwards I was thinking about whether I was getting the real essentials across – hence the thoughts about knowledge linchpin.

I must digress slightly to contextualise what I would like to say and ask, but stay with me.

Humans have an amazing capacity to create heuristics to make sense of a complex environment. And whilst this is necessary to cope with a flood of information, it stands to reason that much is missed – and that often includes very important ‘facts’. And it is not necessarily a positive thing.

I have always been quiet amazed how people can reduce vast amounts of information to a bite-sized ‘infobyte’. For instance after listening to a 2-hour research presentation, people will latch onto less than a handful of ‘factoids’ which will shape the marketing strategy from there on.

And I wonder if (for instance) our prejudices can’t be attributed to the fact that we create complete mental models based on snippets of perception, heavily filtered by our culture and society – which are almost invariably wrong, but form the basis of our worldview nevertheless.

People generally create these heuristics to help them function and people build their entire approach to life (and work) on such knowledge fragments. The fact that happens is indisputable – and well documented by such luminaries as Cialdini (Science of Influence)

Back to retail knowledge:

Some of these knowledge fragments would have validity, and others would simply be preconceived ideas disguised as experience. [So many people who think they have 20 years experience actually have 1 year’s experience 20 x over.]

This post is about those facts about the retail system that are undeniable; the true linchpins of knowledge as they pertain to the practice of retailing.

What would YOU consider to be a small, seemingly insignificant, but absolutely indispensible piece of knowledge about the practice of retail?

In my mind there are a few such linchpin insights about retailing upon which the entire body of retail knowledge must rest –and should this ever be disproven or changed, it would completely change our understanding

This was a very long-winded way to get around to this simple question:

Which retail insight is THE most valuable and useful for someone in retailing to know?

In my view there are a few such snippets. I will address two of these in another post (Retailing 101). But this principle is right up there:

There is a FIXED relationship between Sales (revenue) and Stock (inventory).

(By fixed I mean ‘relatively’ fixed, since there are individual differences, but that within a range this holds true if all other things are held equal – ceteris paribus.)

That is:

The ratio [stock: sales] is (for a certain category, ceteris paribus) always the same.

So, the stockturn for a jeweller is around 2x per annum. The stockturn for a ladies fashion store is 4-6. And so forth. (This list is a bit dated, but serves to illustrate the point.)

In practice this means that when a store is underperforming, the first metric you should consider is this ratio.

If the ratio is within range (on benchmark) then your only strategic option is to increase your inventory holding. This is the only way to increase sales and in fact it is a PRE-REQUISITE for increased revenue. Because of the fixed nature of the relationship (you can’t increase the stockturn if it is in range) therefore the ONLY option you have is increase the stockholding.

The opposite is true as well of course. If the ratio is too low, then you have to reduce your stockholding or figure out a way to increase the rate of sale. In this case the rate can be increased (through marketing etc), whereas in the first scenario, when the stockturn is on target, you CAN’T increase it further (all things being equal, and certainly not sustainably).

This ONE piece of knowledge (the relationship between stock and sales) is powerful and understanding it makes your strategic and operational decisions simple.

I know so many retailers who don’t understand this, needlessly spinning their wheels with promotions and discounts when it is not the solution.

[Of course you can also increase sales by increasing prices, but I assume that the merchandise is already optimally priced – and if a price increase is a viable option, then you would have taken it already. This is a subject for another post…]

  • I wonder if you agree?
  • Do you have your own ‘linchpin’ insight?
  • Are you willing to share?

 

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