As all retailers are working hard to cope with increased operations costs linked to a safer environment for both Teams and Customers, we analysed over 300 million of our clients’ transactions and sales data over the last 4 months to find out where are the untapped pockets of profitability.
If the New Normal is a buzzword, the findings of our research are not new at all. The question is: while we already know what impact our profitability, what are we really doing about it?
1. MARGIN KILLERS
That is a no brainer. Items with a negative margin are margin killers. I guess everyone knows that. What you might not know, is that the number of items in this case is much higher than what Teams usually think.
2. THE MALICIOUS MARGIN KILLERS
The most powerful margin killers are of course negative items margin. These one are deadly. Some of them might have been put here on purpose (items subject to pricing policy for example). But there is another breed of margin killers – that are actually very dangerous because Teams often do not pay that much attention to them. For example: old promotion items, inconstantly priced items across stores and sales channels, items priced without following the category guideline, or forgotten items whose price was lowered at a certain time for good reasons. Such items easily represent up to 10% of the total assortment. They are malicious because not as visible as negative items margin, and their sum of can be very costly. These items must be on our margin Killer Radar. And the main reason they are on that radar is because neglect.
3. REDUCING THE PROFITABILITY PAIN
In practice, and for our experience, a simple approach can be setup
· Define the threshold of your margin alerts
· Ask for a Sku review by Margin Segment
· Integrate these requirements as a working process that you embed as a workflow
· Make the review of Margin by items an automated reporting your Category Reviews
4. BOOST PROFITABILITY WITH DISTRIBUTION
And as you are setting up and solidifying the Margin Hygiene Routines, let’s not forget that the final lever of profitability remains the Range and its distribution. From our experience, the average number of common items at a retailer (common item: an item which is present in all stores) is rarely above 5% by category. And the number of non-commonly distributed items that are both top sellers and top margin contributor represent, In our research, up to 10% of the total assortment.
5. NO PAIN, JUST GAINS
So yes, low or negative items margin are inherent or the retail industry. Still, a simple and methodical approach, supported by a smart tech, can liberate impressive amounts of margin. It is not rare, when a retailers starts executing this approach, to see the margin rate grow by up to 0.3 to 0.5%. And when the routine is in place, a simple Like for Like analyses will demonstrate how much is Saved every month.
Setting such routines over tens or hundreds of stores across several formats might seem an insurmontable challenge at first. In reality, The solution is quite simple. With today’s technology, tools like TRF RETAIL embed intelligent spotting and reporting about such items. The alerts are generated in seconds, so do the reports. TRF RETAIL does even more: it integrates Negative Item management as an internal workflow so solving negative items problems cannot be avoided by Teams. And this is the same for Items Distribution.