Brand retailers have many KPIs, but still can’t guarantee expansion success. This article shares how to read a brand’s retail DNA and lower expansion risks.
Imagine you are CFO or Finance Director of a successful wholesale brand – a brand that sells home interior items, chocolate, toys, or BBQ grills. You have a portfolio of more than 100 own and partner stores. You are a strong brand in your segment, but your forays into retail show mixed store P&Ls. Unlike wholesale profitability, the performance spread of your store is huge. Your organisation offers many explanations and excuses. But you can’t really ‘read’ why sometimes retail works and sometimes it doesn’t.
Trust us, if we say, that this happens quite often, to small and large companies. It happens to family businesses and listed corporations, in the US & Europe. Interesting enough the finance and retail team analyse 20+ KPIs – and every year there are new answers: “it’s the product”, “it’s the location”, “it’s the local price competition” … Everyone you talk to has a different perspective – and even those change from month to month. But the bare truth is, retail cannot explain their magic formula – the brand retail DNA – to achieve retail performance stability. Retail cannot guarantee that investments in expansion are a safe bet. Yet, they will still ask for more expansion investments next year.
Retail is in Many Ways Mathematics – but Not Only
Would you believe there is a ‘Brand Retail DNA’, and that retail productivity is down to mathematics? Over the years we have analysed local and global retail portfolios and we have developed expansion strategies and growth programs for many brands. In all that number crunching and search for patterns, we learned that less than 10 ingredients determine a brand’s retail DNA. This DNA tells you for example; whether the brand can afford to pay High Street rents of €80/m². You can read in the KPIs whether you are a destination brand or need to hijack other retailers’ traffic. The KPIs tell you whether your brand requires right adjacencies (‘retail neighbours’) to be successful. Your KPIs allow you to calculate the minimum location traffic you need to get to target sales. More so, you calculate whether the planned sales for a new location are realistic.
Understand Your DNA – it is Not Rocket Science
At Team Retail Excellence it happened that 1 or 2 times a year we assisted a brand to analyse its retail portfolio. For example, the home interior lifestyle company, operating retail for 15 years and in far more than 100 stores. As with many brand companies, the retail business is a shared responsibility of a central retail division and the local sales organisation. Product & visual merchandising is organised from headquarters, whereas the local country organisations focus on sales and cost efficiency. However, store P&L numbers are poor overall and inconsistent. There are more than 10 explanations as to why some stores work and others don’t. The portfolios range from 70 to 300 m2, are located in A1 to B2 locations, and show conversion rates of 7% to 67%, with one common pattern: in every location, brand management tries something new. Shops struggle to recover costs – because sales volume is too low, or because rent and/or personnel costs are too high.
A thorough analysis of the store portfolio (including location assessments and store checks) extracts an interesting DNA:
- Premium brand
- Low consumer awareness
- Narrow but affluent customer segments
- High fan base but declining customer loyalty over time
- High average ticket values, but
- A classic ‘ice cream store problem’ (just 3 months turnover will determine the profits).
By distilling the DNA of different store P&Ls and identifying the patterns which drive P&L – we can develop recommendations on how to rework the retail model. One key brand retail DNA finding: don’t go to premium High Streets, instead invest in a B location and use local direct consumer marketing.
Every DNA is different
Every Brand’s retail DNA is unique, but the level of competition for the ‘best’ High Street locations indicates a belief by managers in the same strategy for expansion. Brands often have an ambition to ‘copy & paste’ other brands when it comes to retail. Instead of defining their own unique ingredients that make it a successful direct consumer business. Our home interior brand needed to focus on consumer experience instead of location excellence. It must invest in storytelling, sales performance and direct to consumer marketing. Saving costs on personnel would damage the brand and very quickly erode the top line of the store’s P&L.
Is retail only mathematics though? Definitively not! Its also the quality of an organisation, the evolution of its processes and tools and most importantly its people! Good store managers also make a difference. But regardless where managers have developed their skills (at successful brands or retailers) it is most important for them to acknowledge that every brand and its retail success is different. Therefore retail managers and financial controllers need to learn the very unique brand retail DNA. Only with that understanding can you create and maintain a sustainable retail growth model, with low investment risks.
This is a variation of an earlier post published in retail-intrapreneur.
About the Author:
Guido’s background is in finance, before he started a 20+ year long career in retail, consulting & interim management. His collection of ‘commonly used’ retail KPIs exceeded 100 a long time ago. Still he believes KPIs are without value, if you can’t read the location or the brand. Feel free to contact him for an opinion and rest assured he will help you, with tips & feedback. You reach him best by email or see more from him here.