My last installment in this “pause” I am pursuing is regarding the need for productivity. Heaven knows that rents and those dreaded “extras” are making retailers small and large weep on a daily basis. The notion of improving productivity (and its cousin efficiency) must be woven into every initiative a retailer undertakes.
As an example, the easiest one to pinpoint is the largest store expense, (along with the label as its largest “bugaboo”) staff payroll. Almost always measured as a percent to sales, the old fashioned way of detecting an increase in productivity is having the percentage go in a downward direction (often what I call a “death spiral”). This does more damage to your brand and any increases in productivity from a sales perspective than anyone can tabulate.
It is an easy thing to do: Decree to “cut payroll”. The Brick and Sears are living examples right now of what happens to sales and profits when a short-sighted leader announces that it is necessary to cut back hours on the sales floor and that the stores must “hit a number without fail”. I wish it were that simple. The Brick has since come back from the brink of insolvency to add more hours and ensure that customers are looked after and sold some merchandise. What a revolutionary notion!
To be honest, if you operate stores, they are your faces to the consumer. This is what the consumer can touch and feel and see. Why mess it up with some arbitrary goal of payroll percent? If you want to talk productivity, then give each staff member a Sales Per Hour (SPH) dollar goal and track it. Once each sales person accomplishes these goals, you have more than paid for their services, added sales and made customers happy. You have therefore improved your brand position.
Or, you can track conversion, which is my favourite statistic. If you increase conversion (increase the number of purchasers from the actual number of people that wander into your store aka traffic), you are improving productivity. That is a goal worth pursuing in store.
Productivity of inventory is another form of generating cash flow and ensuring smart investments and returns. It is obvious that if the wrong merchandise is bought and is therefore not selling, that affects productivity (not to mention Gross Margin per Square Foot productivity as well after you have to take massive markdowns to clear the slow moving merchandise). But you could have the right merchandise, just not in the right quantities. Or you could have the right merchandise but not in the right places (ie what is selling well in Vancouver is not in Halifax and vice versa, therefore you are sitting with productive merchandise but in the wrong places). This makes the art of allocation, planning and distribution very important. Personally, they should be the smartest people in the room.
Productivity in the distribution centres is critical to ensure timely deliveries of fresh merchandise as well as replenishment of fast selling merchandise. But can your distribution centres turn on a dime, re-route, change their daily and weekly routines based on the trends and needs of the business? A flexible system, along with a very clever and sophisticated software package to analyze the business will yield higher productivities as well.
The final element I want to mention regarding productivity is based on the marketing dollar spent in a particular season or campaign. The question usually isn’t whether the campaign worked or was effective, but how does the campaign get measured? How can we tell whether it was effective or not? How do we pinpoint the exact cause of the dip or surge in sales? Those are questions that should be asked before designing and deciding on a particular marketing program.
In today’s retail reality, productivity is king. Every dollar must be squeezed out of every asset from people to real estate to size, colour and style of merchandise, not to mention vendor.