Posted in Research, Risk Management, Strategy

Life and Death

Right now most retailers are worried about the emergence of new channels and the associated raise of social media as an additional / alternative marketing platform.

In truth, this is nothing to worry about – it is the cycle of life (and death) as we have known it for aeons. Whether it is a football team, a tree or a country – the cycle of life applies to everything and retail is no different.

This process can be illustrated by the typical lifecycle curve as per figure 1.

 

The emergence of the abovementioned trends has no doubt shortened a few lifecycles.

Strategy textbooks teach us that the traditional and ideal response would be for a business to use the strong cashflows from the mature stage to invest into growth categories/products or markets.

In this case, the business ‘jumps’ the curve. Figure 2 illustrates the process. The truth is that few businesses actually repeat this process repeatedly. (How many businesses can you think of that have reinvented themselves over many decades – compared to the number that have gone bust?

 

There is a third and scarier curve that we face: the cycle of death.(Figure 3.)

I indicate that there is a disruption that destroys the curve (and it can happen at any stage of the life cycle – not only at the end of the curve.)

And a changing climate is such a (potential) disruption.

We were doing some work in Caloundra on the Sunshine Coast recently (nice work if you can get it, I know) and upon arrival at the airport we were informed of the “Ash Cloud.”

We ended up driving back to our hometown some 1200km and 14 hours away. And besides the inconvenience of having to arrange emergency accommodation for our 13yo, the effect was minimal.

You would argue that the economic effect was possibly even a net gain as people suddenly paid extra for accommodation, travel, cabs, meals etc.

But if you consider that cloud to be just one example of the adverse economic effect  of climate change and let’s imagine if that cloud hung around – permanently.

Let’s play a little what-if game here and maybe you can help me identify all the business that would go broke of Qantas stopped flying:

E.g. What would happen…

–        at Qantas?

–        The little coffee shop?

–        the cabbie?

–        The owner of the surrounding convention centres and hotels?

–        The suppliers to all of the above.

 

Earthquakes and ash-clouds and dying oceans will not respect the country borders.

Globalisation created an interconnected world in an attempt to lower the costs – and now it seems it was a zero sum game because all those costs we saved are now coming back to haunt us.

 

Here are a few thoughts from Paul Gildings (researcher and author): “The Earth is full”. Think about that for a moment.

It is easy to quote many scary statistics, but the truth is that it is almost as easy to quote the opposite. Most people cannot predict what they will have for breakfast, never mind the state of the ecology in 30 years’ time.

But let’s consider just a few facts that are relatively clear”

Based on current trajectories all fisheries in the world will collapse in 2048 – (30% already have.). You may be able to imagine a world without fish, but about 1Bn primarily live of fish. I don’t know whether you have thought about how these people, mostly from under-developed countries, but also including countries like Japan, are going to react when the disaster becomes obvious and imminent?

 

We are facing a Mad Max kinda future. A recent study has identified 9 planetary boundaries (climate, biodiversity, nitrogen levels etc.) which are critical to our long-term survival. The study found that 3 of those boundaries are already past the tipping point – i.e. beyond the point of no return.

You cannot separate the Ecology from the Economy. The US Senator Gaylord Nelson remarked that: “The Economy is a wholly-owned subsidiary of the Environment, not the other way around.”

Here is a picture to that will clear your sinuses:

Imagine the Earth is a pool of Capital. It is finite of course. We cannot make more ‘planet’ even if we wanted to and no matter what you smoke, that won’t change.

Human beings live off the interest that this source of capital generates: that is our sole source of income.

We are currently living at 140% of our capacity. If we take 2008 as our base year, that means that come 25 September 2009, we have spent all our money.

We then proceed to draw from our capital until the end of the year – when the next batch of interest becomes available.

  • What happens in 2010?
  • And what happens to the total amount of interest we had available?
  • What happens in 2011?

Change is sudden and non-linear. Until the day before you run out of money – everything will still seem OK. That is why it is so hard for people to see what is happening.

With Population Growth at 0.8% and GDP Growth at 2.5% and Efficiency Improvements at 1.2 % (all current numbers) – it takes us to a Planet at 500% of capacity by 2050 (and 2x capacity in 2030.)

Does that scare you?

Don’t worry; it won’t happen because it can’t physically happen.

A dam can be 100% full or even 120% full, but it can’t be 200% full because then there is no dam. As Australians we should, tragically, be able to relate to that.

This is Australia, so you won’t be offended if I talk about our BIG CONSUMPTION HANGOVER – the cause of which is pretty evident, particularly in the developed countries:

  • In the US the Average CEO wage is 500x the minimum wage.
  • A Hummer is bigger than 2 shacks in Soweto that would house maybe a dozen people.

I am not a climate change advocate. In fact, I probably lean more towards the sceptical side if you want to know. But as you will see shortly, it does not actually matter which way you lean, there is a massive disruption on the way.

Human beings are very good at filtering out information that does not fit neatly into our vision of the world. “We can’t cope otherwise,” says James Glieck, author of books about chaos theory.

I try to resist that. I understand, and so should you that: everything is just probability. There is no certainty. I cannot predict the future. Scientists cannot predict how much it will rain while it is raining, never mind the likelihood or impact of Climate Change.

What scares me most is that if it is not climate change that will cause the big disruption, then it is us trying to deal with it. I don’t purport to know all there is to know, but I am willing to lay very large bets that Carbon Tax is just the beginning.

Now, let’s talk some more about Facebook and Twitter.

Or we could talk about whether your business is built to deal with real disruption.

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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 Research, Retail Operations

Retail winners, retail losers

US-based research company RSR brought out a research report on pricing strategies. The report compares winners (retailers exceeding the median 2% growth) and losers (retailers below 2% growth) on a range of issues related particularly to pricing.

I suppose the assumption is that it makes sense to copy the successful strategies; which is debatable assumption in my view, but it is interesting nevertheless.

The first finding relates to how often retailers change prices (up or down).

One hundred percent of retailers with annual revenue greater than $5 billion report they have increased the number of item price changes

I wonder if this is a necessity, or a case of fiddling with something because you can (enabled by technology) or possibly a case of not having any other ideas?

My favourite insight, to be trotted out to some of my clients in the near future is:

NO retail winners price match, vs. 19% of average performers and 13% of laggards

Retail winners are more likely to recognize that there has been an impact of channel proliferation.

In fact, 20% have “thrown in the towel” and returned to a single price across all channels, 15% understand that they really can’t even get started with different prices across channels, and a quarter believe that channel proliferation has created conflicts that they cannot resolve.

The next finding is particularly interesting. Where do you stand on this?

Winners are driving most of the opportunity shifts away from margin as the focus. Winners are much more aware of improving their competitive price image and the opportunity to increase market share, while peers remain focused on sales and margin.

The final finding to share is a difference between large and small (not winners and losers) that is particularly interesting. (Or maybe I am just a geek.)

In a world where consumers have near-perfect information on prices, how can a retailer compete? One is by focusing on promotions; particularly targeted promotions. One finding that the larger retailers have adopted but are NOT followed by smaller retailers is how aggressively they promote.

Only 23% of retailers with annual revenue under $250 million report they have become more promotional vs. 62% of retailers with revenue over $5 billion per year.

Do your strategies match those of the retail winners or losers?

Why? Why not?

 

Dennis

 

PS: If you want to approach pricing systematically, and need some clarity on some of the key concepts and factors, you can get the book here.

 

Posted in Management, Retail Operations

10 signs that your business is failing

I see a lot of business pain. And what pains me is that so many of these things are avoidable.

It is always risky to diagnose.

Truly understanding the difference between ‘symptom’ and the ‘problem’ is obstacle number one, and the second is the diagnostician’s perspective. (If your only tool is a hammer, every problem looks like a nail.)

Whether any of the things on this list actually causes the failure or is symptomatic of other underlying issues (such as poor skills or bad attitudes) can’t be ascertained without looking deeply into the specific situation.

In the interest of helping you think about your business, consider this an exercise in self-diagnosis. (Requires honesty of course…)

 

  1. Under-stocked  or over-stocked (unbalanced allocations)
  2. Cannot produce a current set of financial statements
  3. Does not know KPIs (know sales figures, but nothing much else)
  4. POS system out of date (stock figures not current)
  5. Poor relationship with centre manager
  6. Sees staff as a cost to the business
  7. Inappropriate marketing (e.g. sponsoring the local bowlo, but selling high end fashion) OR no specific plan to market the business. (A 4-part series on advanced marketing starts here.)
  8. Complains about the competition (and blames them for doing well at their expense) or other external factors.
  9. Dated fitout/poor layout and sub-optimal configuration (in all but one case in the last 4 years). A series of 12 posts on this topic starts here.
  10. Wrong person in the wrong business (mentally retired or sold the business and is there in body only)

 

BONUS

  • If you don’t want to invest in training/consulting, you can get some assistance here
  • A 2-part series on 60 ways to increase efficiencies start here
Posted in Future, Management, Risk Management, Strategy

The golden rule of success: do sh$t

Most people think they ‘get evolution’.

Survival of the fittest. That is what Darwin said. So it means the fittest survives and prospers. That is an argument for getting stronger and fitter.

The truth of the matter is different. And the evolutionary imperative is not a message about strength of fitness. It is about the exact opposite.

Let me explain Darwin’s theory by using an example. Imagine a flock of birds on an island.

  • Due to random genetic mutations a few birds are born with slightly longer beak.
  • This, fortuitously, makes them more suitable to access the berries of a particular plant that had previously not been an option.
  • Because of this abundance of new food, they thrive – and their mutation is rewarded with an increasing flock.
  • The birds with the longest beaks get the most berries and are the strongest and get to mate more often, creating little birds that look like them.
  • And so the cycle continues.

What happened here is not about being rewarded for your superior beak.

The key message is that the superior beak was created because of a random mutation in the first place.

If you want your company to be fit to survive, then it is not about strength or fitness – it is about mutation.

The birds, of course lucked into it.

Companies and people could luck into it as well, but there is a difference in that we can choose to mutate. Or let’s call it innovation.

Your worst enemy is getting better at what you do. Entrenching the status quo will dis-incentivise the crucial need to evolve. (This is why there are only a handful of companies in the history of the capitalist world that have survived for more than 100 years. They usually grow old and fat and lazy and they die.)

Colorado Group is the most recent example. It is a good company and a stable of decent brands. Whilst I never did any work for them, I am pretty sure their management team tried to get better at what they were doing. And I am sure they were as experienced and dedicated as any other retail team.

The point is that it is not sufficient to get better at what you do.

A key facet in this is that evolution relies on random mutations. In the real world we can try to be more pragmatic (analytical?) about it, but my guess is that randomness still plays a major part.

If we can’t predict the next evolutionary twist in the road with any certainty, we can make up for it by increasing the quantity of our efforts; the number of innovations we attempt.

Try a lot of stuff. All the time. Sooner or later something will work.

It’s like buying lotto. The odds of winning are very small. But if you buy every possible ticket combination you will win – guaranteed. You will go broke doing it that way, but the answer lies somewhere in between. (As Gary Player famously said; ‘the harder I practise, the luckier I get.’)

 

Where a little bit of luck intersects with a lot of effort is the sweet spot of success.

 

This is how the world works, whether you believe it or not.

Posted in Merchandising, People, Retail Operations

They said…

This post is not about the shameless self-promotion. It is about being proud to have made a difference.

Listed below are some of the comments from agents that attended the Retail Remedy makeover:

 “I thought it was outstanding. Ed and Jo have done an excellent job and are inspired to do more.  As Ed and Dennis said, News Ltd was the catalyst to freshen up a ‘tired’ Newsagency and should be congratulated. This whole concept can help ‘fix’ a lot of similar Newsagencies at not a great expense”.

 “As we are doing a makeover of one of our walls at the moment I found it inspiring and have picked up some great ideas from Eddie and Jo. I felt that it was like walking into a complete new shop. Once again thankyou to NWN and Dennis and his wife for a great worthwhile promotion”.

 “After seeing the shop on the first presentation I didn’t think it needed that much doing to it, but when we saw the completed makeover I can’t believe the difference it made”.

 “I thought the completion was good, but they should have focused more of the magazine stand at the front of the shop, I know that they plan to do that next, but I would have done it first as it is the first thing customers see.  The rest of the makeover was great”.

 “The whole idea of getting the newsagencies together with these workshops is a brilliant initiative of News Ltd, because when we get together we network & communicate and that’s where newsagents get their strengths from.  When Dennis said to just move things around in the shop as you notice it more when you do, is great advice and we should all do more of it.  I like the changes that Ainslie made and it has made a vast improvement on the look of the shop, I will be experimenting in my shop with my stock placement in the coming weeks.”

 “I thought it was a terrific improvement and you could really notice the changes, we will be taking a lot of the ideas shown to us and using them when we move into our new shop location next month”.

 “The changes are good, the before & after is very different, we are doing the survey and I am working with my senior staff to see where we can make improvements in our own shop.”

 “The whole shop looks brighter and there are noticeable improvements, the makeover overall looks great, it shows what a little money spent in the right areas can do”.

Posted in Retail Operations, Selling & Persuasion

How to sell s#*t

An amazing story was brought to my attention (via Dave Trott) recently. I will paraphrase it for you:

In 1960, the Italian artist Piero Manzoni made an art work called “Merda d’Artiste” (The Artist’s Shit).

The artwork comprised several sealed cans containing 30 grams of the artist’s faeces. The idea was that the price of the artwork would always be directly linked to the price of gold and would rise as the price of gold rose.

Manzoni was poking fun at the art establishment by making a statement: “Look, the experts can’t tell shit from art.”

At the time Manzoni created that artwork, the price of gold was $1.12 a gram, translating to $33.60 for each can of his faeces. Only a lunatic or a moron would pay thirty dollars for a can of shit and Manzoni thought they were mad because they’d never be able to sell it.

But, the cost of Manzoni’s excrement rose faster than the price of gold.

In 2007 the price of gold was $28.94 per gram valuing, so thirty grams of gold was worth $870.

In that same year, a thirty gram can of Manzoni’s faeces sold in America for $80,000  – about hundred times the value of gold.

Now obviously the person who bought that can wasn’t actually paying eighty grand for a small tin of faeces.

So what were they buying?

What was worth a hundred times the cost of gold?

Were they buying proof of their status or showing they could throw away eighty grand on a joke? Were they buying proof of how cultured they were or did they show they possessed a daring, controversial artwork?

Whatever they were buying it wasn’t the physical object.

It was something the physical object represented to buyer; even something that was exactly the opposite of what the artist intended.

He made the artwork to prove how stupid they were. Then they paid a fortune for it to prove how cultured and intelligent they were.

They didn’t even try to understand anyone else’s reality. They just changed it to fit their reality instead.

Dave says it is something experts do. I reckon it is just what people do.

 

In some of my training sessions I want to demonstrate this reality and I show people these images.

 

What does the first image say? Can you make out the sentence?

 

Most people get that, and they complete the sentence

 

PEOPLE MAKE THEIR OWN MEANING

 

What the picture ACTUALLY says is this:

 

The point is this:

 

People really DO make their own meaning. In this example we take HALF the facts presented to us and we simply complete the picture in a way that is familiar to us.

 

 

Lotto understands this, so they sell the dream.

 

But when you sell dresses, hardware, stationery or washing machines- do you really understand what you are selling?

 

And more importantly, do you understand that customers are not buying what you may think you are selling?

 

It goes towards the idea of a core product. If you want to understand it in more detail, here is a post about it.

 

Just saying it like it is…

 

Dennis

 

 

Posted in Marketing, Retail Operations, Shopper Marketing

How do I calculate breakeven on a promotion?

The Breakeven volume must factor in how much you will spend on the marketing of the event/ promotion. Simply divide your Fixed Costs (total marketing expenditure) by the Gross Margin % of your offer:

 

                                         Total Promotional Expenditure

                                          Gross Margin % of the offer

 

                                                             $500

                                                               40%

                                                           = $1250 (of Sales must be achieved to breakeven.)

 

This is a shortcut method and not 100% accurate, but close enough to be in the ball park. (This presumes you know the total cost of the promotion, and that these costs are all fixed.)

 

You should remember that a promotion does not ONLY return you the short term sales, but you may be gaining a few new customers who continue to spend with you.