Profiteer Your Brand
Let’s talk about determined business change in the language of maximizing retail omni-channel assets. Let’s talk about retail assets that are charging opportunity-assets to perform more aggressively while simultaneously downsizing non-essential, discordant assets rapidly: replaced and enhanced by digital cloud based mechanics and triggers.
The real discussion for retail America is not what we are trying to solve but rather what we are trying to create. We appear to be creating maximum electronic efficiencies among creators, sellers and buyers that ship overnight. We appear to be creating the transformation of physical selling and support relationships through ubiquitous clouds. And sadly or perhaps happily based on which side of the transactional relationship you are plugged into, your job, your career, your future, your opportunity to serve consumers is changing, possibly out of your personal control.
Change is now, and will continue. America’s online shoppers will spend $327 billion in 2016, up 45 percent from $240 billion in 2012 according to Forrester Research projections. Forrester stated they derived this estimate by analyzing trends in the monthly retail sales figures released by the U.S. Census Department; (Forrester estimates do not include sales of cars, trucks, gasoline, groceries and restaurant meals). Amazon, leading this modern day cloud purchasing renaissance posted over $15 billion just in CE product sales for 2013 with zero physical stores up a whopping 21 percent over 2012.
So what’s the point? It's that retailers, based on reduced foot traffic, aggressive consumer cloud purchasing and weaker economic indicators need more in-store margin support from manufacturers to keep the lights on and doors open. The point is that retailers are being forced to reduce their hefty SG&A costs from highs of 27 percent to a more normalized and average in-store cost of operation of 20 percent or less. Shutting down underperforming stores, a trend we are all very familiar of late, is one way to reduce the aggregated SG&A burden to profits.
The bigger point is that retailers are taking action. They are smartly and quickly creating large and medium format brand-store-in-stores with new vendor-provided human capital in the aisle to better offset their square foot store costs while better serving consumers with highly trained manufacturer reps. Microsoft, Samsung, Sony, Google, Beats and Bose, just to name a few have aggressively landed at Best Buy and other retail stores to garner large selling and marketing real estate plots. All while retailers are aggressively running hard and fast to re-normalize profitable balance between their physical stores and cloud based cash registers. Already, many retailers have increased their cloud-based product margin requirements to match and mirror their in-store requirements to ascend margin balance wherever and whenever their retail brand sells a vendors product. These changes cost real capital and real margin to every manufacturers. These retail changes means manufacturers must also change and quickly.
Manufacturers and their garrisons indeed need to do their part to help retailers through increased margin and in-store profit-prone participation, engagements and requests. This important concord between manufacturers and retailers is what best serves and stimulates consumer participation, consumer demand. Hence what is “good for the “retail goose” is good for the “manufacturer gander.” Meaning, retailers and manufacturers have the same roles and responsibilities to cut costs, to over perform profit to best serve and enhance consumers. The following are suggestions for retailers and manufacturers together to own profitable, sustainable change not by choice, but rather by global market competitive reality:
1. Profiteer Your Brand: Manufacturers need to core down and heavy up on fewer more successful product SKUs while simultaneously cutting down on non-profitable, underperforming product lines. Weak product performance equates to weak brand positions equates to weak profit opportunities for retailers, manufacturers and consumers. Change means better manufacturer economies for achieving viable product scale, profitable brand posture.
2. Profiteer Your Shelves: At the same time retailers need to focus and promulgate higher-profit-gain products in-category with formidable viable brands, perhaps not always the biggest most powerful brands. Believe it or not, many retailers today prefer to sell a $399 big brand widget and make 25 points of margin then to sell nearly the same featured widget of a lesser brand for $299 with 40 points of margin. Margin enhancement change suggests the lessor priced widget would offer faster inventory turns with higher overall retail profit.
3. Profiteer Good, Better, Best: Both physical retailers and manufacturers need to reduce their relevant cost of goods sold while offering a larger variety of good, better and best priced brands in category to better serve consumers highly varied geo-demographic pocketbooks. Store traffic, the lifeblood of physical retailers is measured not only by “how many visitors today” but also by “what and how much did they buy during their visit today.” Greater and wider pricing spreads in line logic assortment means no consumer leaves the store without package in hand.
4. Profiteer Choice Not Chance: Consumers in any product category divide themselves first and foremost by juxtaposed choice before making an informed purchasing decision. This is why line logic selling, laying down competitive brands with price escalation, enhances the buying experience: allows any consumer to become an informed buyer based upon cosmetic, design, features, brand and pricing differentiation. Store-within-a-store set ups are very valuable however, isolation of a singular brand in one location can also be dangerous because consumers can become frozen-confused absent of comparative and competitive choices missing in the aisle.
5. Profiteer At What Cost: Our consumer electronics business, based upon a simple 3rd party research market share review reveals in nearly any product category a big-brand-winner-take-all global dominance. Products are size-shrinking, hyper-changing product life cycles are getting even faster, forecasted margins are harder to project, tougher to achieve. Our colossal changing retail and manufacturing dynamics catalyzed by the internet requires swift, immediate change to reduce overhead costs and increase operating efficiencies across every touch point of our retail and manufacturing businesses.
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Peter Weedfald is the Senior Vice President of Sales and Marketing for Sharp Home Electronics Company of America (SHCA). He has also served as President of Gen One Ventures, SVP, Chief Marketing Officer of Circuit City, SVP of Sales and Marketing in North America for Samsung, and SVP of global marketing and EEVP, GM & Chief Marketing Officer for ViewSonic.