Retail In Inflation

Efficiency manual for Retail in Inflationary environment or How to face the turbulence of inflationary environment with competence by Alain Winandy www.infovarejo.com.br www.awac.com.br

Efficiency Manual for Retail in inflationary environment

Introduction

I grew up with a scenario of 3 to 4% of inflation per month, here in Brazil. When I started working in Retail (in supermarkets and megastores), in 1985, the inflation rate ranged between 10 and 30% per month, reaching 40% per month in 1994.

Now, the international financial crises of 2008/2009 can bring to countries that didn’t have this experience an inflationary environment to which they must be obliged to cope with.

Once I’ve managed business with success during period of inflation, I hope to be able to contribute with my experience for others to face with more confidence this complex and turbulent environment.

Stock level: are you efficient to work with minimum stock levels ?

Low stock levels were already important, and nowadays are even more. With inflation, stock costs rises faster than buying power. The cost of money is high, and its availability is low.

Negotiate the efficiency in the delivery of goods: goods delivered as ordered, in the quantity ordered, at the date ordered.

Recalculate your minimum stock level: even renegotiating delivery and logistics, the minimum stock level must be repositioned in the rupture limit (take risks, raising efficiency and control to diminish it).

Raise the frequency of orders/delivery, to work with lower levels of stock and diminishes the effects of mistakes in orders.

Stock level: are you efficient to work with minimum stock levels ?

Analyze and review the line of products: products with low turn over rate, if important to the composition of product mix, must have its situation solved with supplier participation. Lower cost, higher payment deadline, higher turn over rate, or exchange for substitute product, if there are any.

Redesign you internal logistic: minimum time for reception. Verify the fastest way for goods to reach shelves, when and why.

Define clear guidelines for sales leftovers (devolution, exchange, etc).

Sales: raising the turn over

In inflationary environment, the higher the turn over rate of the product, the better.

Sell quick, invest money, and then pay the supplier. The higher the time that the money stay invested before paying the supplier, the higher will be the profit.

Resist the temptation of gaining over repricing your stored products. Goods not sold is cost, raising the price because your supplier raised its prices may diminishes sales and create a negative image of high prices.

Raising turn over, the operational income margin raises, stock costs diminishes and fixed costs dilutes, diminishing costs even more.

Negotiation: more to prepare and to negotiate

Renegotiate payment deadline with suppliers. Longer deadlines to raise the difference among buying, selling and supplier payment.

Negotiate deadlines enforce the new price table: with inflation, suppliers price tables start to come with higher frequency. Negotiate the deadline (more than 30 days is ideal), from table receipt until its application. This will allow you to place orders in the old price table, while part of the market will be using the new table.

Higher and more frequent price research: monitor market to see if suppliers’ new price tables are being absorbed by your competitors.

Negotiation: more to prepare and to negotiate

Low prices have now higher importance: consumers without money do more research, and becomes less loyal to product brands, by need.

Prioritize price negotiation, to diminishes the cost of sold goods.

The perception of low prices: it’s not possible to have low prices in everything, but if you have low prices in the mix of products oriented to your target-consumers, the perception is expanded to the whole store. Renegotiate these products, introduce in your product line that helps this perception, review your “margin mix”.

Go into detail: analyze product by product of your supplier, create a strategy together to maximize efficiency (product turn over and profitability).

Invest quickly your revenues

With inflation, the cost of money raises, but return on capital also raises. Buy well, with low stock, sell quickly, invest the money before paying the supplier, manage these points with efficiency may allow you to reduce your commercial margin, due to financial gain.

Lower Commercial Margins, resulting in lower prices and higher turn over rates.

Negotiate investment taxes with banks.

Accelerate cash flow: from store to the bank, to investment, to withdraw, to payment.

Verify available payment means to consumers, and prioritize or favor payment means that provides money quicker after the sale.

Review your costs

If lower prices are more important, lower costs also are.

You don’t need to be the leader in costs, but need to be sure that you did the best to face this moment.

Raise your employees’ awareness of the importance of low cost in actual moment. Encourage suggestions, create interdepartmental workgroups, create internal campaigns.

Postpone low-priority spending (like buying equipment, minor store reform and maintenance).

“ Attack” your losses obsessively.

Analyze and redesign the mix of vehicles for advertising, prioritizing those with higher efficiency for your business. Cooperate your ads with your suppliers.

Summarizing:

Stock level in the minimum possible level.

Maximize your products’ turn over .

Negotiate and review product and margin mix.

Accelerate cash flow .

Review your costs .

Reinforce your partnerships to find better solutions together.

Efficiency manual for Retail in Inflationary environment or How to face the turbulence of inflationary environment with competence by Alain Winandy www.infovarejo.com.br www.awac.com.br