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Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
Why retail businesses_fail
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  • 1. The State of The Retail Industry Why Retail Businesses Fail White Paper“When I want to understand what„s happening today or try to decidewhat will happen tomorrow, I look back into the past because that„s the best predictor of the future is actually the past”. Oliver Wendell Holmes Romeo Richards The Business Education Center January 2012 Copyright © The Business Education Center. 1
  • 2. Contents: 03 Executive Summary 06 Research Reference 11 Why Did La Senza Go Into Administration? 15 Lack of Level Five Leadership 18 Lack of Understanding of their Target Market 23 Lack of Trained Staff 24 Lack of Sales Training 25 Lack of Product Knowledge 27 Bad Customer Service Provision 28 Low Wages 30 Harrods‟ Success Secret 35 Prescription: How to Turn Retail Failure Into Success 37 Retail Blue Ocean Strategy Framework 40 The Retail Success Hexagram 45 About Romeo Richards Copyright © The Business Education Center. 2
  • 3. Executive SummaryThe UK‟s retail guru, Mary Portas, recently released her High Street revival report,commissioned by the British Prime Minister David Cameron. In which she discussedthe reasons for the decline of the UK High Street. This follows an earlier report,produced by Colliers CRE which addressed a similar subject.The Australian retail industry is also awaiting a report from its ProductivityCommission into the Australian retail industry. No doubt the US government is likelyto get involved in the fight to save its retail industry.Indeed, urgent action is required if we are to tackle the challenging realities that theretail industry are facing.The retail industry accounts for 8% of the UK‟s GDP, 7.9% of USGDP and 18% of Australian GDP, employing approximately 3 millionpeople in the UK, 14.4 million in the US and over 1.5 million inAustralia. It is understandable that these governments will be concerned about the decline of avery essential industry sector.Whilst most retailers are facing difficulties, a handful, are achieving phenomenalsuccess despite trading in similar economic conditions. Why is that? Why are ahandful of retailers achieving extraordinary success whilst the vast majority continueto struggle?Why are Tesco and Holland & Barrett, the third and fourth most profitablebusinesses in the UK, whilst retailers such as La Senza, Jane Norman, Mothercare,JJB Sports, Clinton Cards, Thorntons and HMV struggle?The reports, written by both Mary Portas and Colliers CRE,highlighted a number of challenges facing the retail industry.However, both failed to address the core problems. Furthermore,they both failed to answer this simple question:Why are some retailers experiencing phenomenal success despitethose challenges? Copyright © The Business Education Center. 3
  • 4. This is the first time in the history of modern retailing that a single document hascaptured the core challenges facing the industry.It is the first time a document on retail has revealed that most retail executives areinadequately equipped to run a business and that the majority of retail middlemanagers are bordering on incompetent.You will also learn why Tesco is the second most profitable retailer in the world andwhy Harrods is the favourite shopping destination for the rich and famous.According to The British Council of Shopping Centres, 1/5 of the UK‟s shoppingcentres are in financial trouble. I have just returned from Bolton. The traffic was soheavy that I had to go through Manchester City Centre. The reason for the traffic waspeople travelling to The Trafford Centre.Manchester City Council has increased the hours of operation for on-street parkingin the city centre from 08:00 to 20:00. Previously it was 08:00 to 18:00. Retailers arecomplaining that it is going to deter people from shopping in the city centre.But here is what I find fascinating. The Lowry Outlet Mall, in Salford Quays has sixhours free parking yet people do not flock there and choose instead to shop in thecity centre despite the increased parking charges or go to The Trafford Centre.So what exactly is it that The Trafford Centre has that draws so many people to it tothe extent that they are willing to queue from Junction four of the M61? It‟s more thanjust free parking.All indications point towards 2012 being a very tough year for the retail industry.According to Verdict Research, the first three months of 2012 are going to be one ofthe most challenging times for the industry as consumers reduce spending afterChristmas.However, there are retailers who are looking forward to 2012 as being their best everyear. So what‟s going to make the difference? This White Paper outlines the core challenges facing the retail industry and gives aninnovative framework for pulling the industry back from the brink.Winston Churchill once said “The farther backward you can look, the farther forwardyou are likely to see.”The Industrial Revolution started in Great Britain. Great Britain was once theindustrial capital of the world. Today the relics of old mills and manufacturing townsthat lay waste all over the UK are evidence of an entire industry that has taken itsplace in history. Copyright © The Business Education Center. 4
  • 5. Rolls-Royce and Rover were once the pride of Britain, today they are both foreignowned. While the rest of the British automotive industry struggle Rolls-Royce hasreported the highest sales in its 107 year history despite the economic downturn.The manufacturing and automotive sectors within the UK becameirrelevant because they did what the retail industry is currentlydoing now: blaming circumstances outside of their control for theirchallenges. As a result of blaming outside forces for their woes, the manufacturing andautomotive industries did not make the necessary efforts to adapt to change.The wind of change is blowing in the retail industry. The internet has changedconsumers‟ shopping habits. Book, music & DVD and electronics retailers are themost affected by the changes brought about by the internet. However, whilst the restof the industry cries “chicken little the sky is falling”, Richer Sounds is achievingphenomenal profit margins.The failing of the UK High Street has little to do with the reasonsMary Portas gave in her report, neither is it the result of difficulttrading conditions. It is a result of an industry that is stuck in thepast.Like the manufacturing and automotive industries if the retail industry does notembrace change, change will be forced upon it.“Here is Edward Bear, coming downstairs now, bump, bump, bump, on the back ofhis head, behind Christopher Robin. It is, as far as he knows, the only way of comingdownstairs, but sometimes he feels there really is another way, if only he could stopbumping for a moment and think of it” (A. A. Milne, Winnie-the-Pooh).There is another way to pull the retail industry from the brink if only retailers couldstop blaming something or someone else and think of it.This White Paper outlines the new way forward for the retail industry. Copyright © The Business Education Center. 5
  • 6. Research Reference  Albert Einstien. 2011. The thinking that we are has brought us to where. Available at: http://thinkexist.com/quotation/the_thinking_that_we_are_has_brought_us_to _where/254777.html Accessed on 6th January 2012.  Anderson, C. 2009. The Long Tail. Random House Business Books.  Asda Group Ltd: 2010. All about Asda. Available at: http://your.asda.com/system/dragonfly/production/2012/01/04/12_59_19_568 _All_about_Asda.pdf Accessed on 6th January 2012.  Big W. 2011. Annual report. Available at: http://media.corporate- ir.net/media_files/IROL/14/144044/WWL0002_AR2011_WEB.pdf Accessed on 6th January 2012.  Best Buy. 2011. Annual report. Available at: http://phx.corporate-ir.net/phoenix.zhtml?c=83192&p=irol-reportsannual Accessed on 6th January 2012.  Buckingham, M. 2005. The One Thing You Need to Know. Free Press.  Centre for Retail Research. 2011. Who‟s Gone Bust in Retailing 2010-2012 . Available at: http://www.retailresearch.org/whosegonebust.php Accessed on 6th January 2012.  Chan, W and Mauborgne, R. 2005. Blue Ocean Harvard business School Press.  Collins, J. 2001. Good to Great. Random House Business Books. Copyright © The Business Education Center. 6
  • 7.  Coles Food and Liquor +. 2011. Annual report and financial statements. Available at: http://media.corporate- ir.net/media_files/IROL/14/144042/2011_Annual_Report_Financial_Statement s_pages_66_180.pdf http://www.corporate- ir.net/Media_Files/IROL/14/144042/2009AR_pages72_180.pdf Accessed on 6th January 2012. Costco. 2011. Annual report. Available at: http://phx.corporate-ir.net/phoenix.zhtml?c=83830&p=irol-reportsannual Accessed on 6th January 2012. Co-operative Group Ltd. 2010. Annual report and financial statements. Available at: http://www.co-operative.coop/Corporate/PDFs/Annual_Report_2010.pdf Accessed on 6th January 2012. CVS Caremark. 2010. Annual report. Available at: http://media.corporate- ir.net/media_files/irol/99/99533/2010_Annual_Report.pdf Accessed on 6th January 2012. Department for Business Innovation and Skills. 2011. UK retail - overview. Available at: http://www.bis.gov.uk/policies/business-sectors/retail Accessed on 6th January 2012. DSG International Plc. 2011. Annual report and financial statements. Available at: http://www.dixonsretail.com/dixons/en/investors/resultsreports Accessed on 6th January 2012. Dun and Bradstreet. 2004. Why small businesses fail. Available at: http://www.captureplanning.com/articles/69960.cfm Accessed on 6th January 2012. Gladwell, M. 2005. Blink. Abacus Books. Gladwell, M. 2000. The Tipping Point. Abacus Books. Copyright © The Business Education Center. 7
  • 8.  Harvey Norman. 2011. Annual report. Available at: http://www.harveynormanholdings.com.au/annualreports.htm Accessed on 6th January 2012. Home Retail Group Plc. 2011. Annual report and financial statements. Available at: http://www.investis.com/ar/2011/financial/groupfiveyear/ Accessed on 6th January 2012. J Sainsbury Plc. 2011. Annual report and financial statements. Available at: http://annualreport2011.j- sainsbury.co.uk/downloads/pdf/sainsburys_ar11_full.pdf Accessed on 6th January 2012. JB HIFI. 2011. Annual report. Available at: http://www.jbhifi.com.au/documents/reports/110_2011-09-09_4-04-34.pdf Accessed on 6th January 2012. John Lewis Partnership Plc. 2011. Annual report and financial statements. Available at: http://www.johnlewispartnership.co.uk/content/dam/cws/pdfs/financials/annual %20reports/John_Lewis_Partnership_annual_report_and_accounts_2011.pdf Accessed on 6th January 2012. Kingfisher Plc. 2011. Annual report and financial statements. Available at: http://www.kingfisher.com/files/reports/annual_report_2011/files/pdf/annual_re port_2011.pdf Accessed on 6th January 2012. Kmart. 2011. Annual report and financial statements. Available at: http://media.corporate- ir.net/media_files/IROL/14/144042/2011_Annual_Report_Financial_Statement s_pages_66_180.pdf http://www.corporate- ir.net/Media_Files/IROL/14/144042/2009AR_pages72_180.pdf Accessed on 6th January 2012. Lowes. 2010. Ten year financial history. Available at: http://www.lowes.com/AboutLowes/AnnualReports/annual_report_10/financial s/10_year_financial_history.pdf Accessed on 6th January 2012. Copyright © The Business Education Center. 8
  • 9.  Marks and Spencer Plc. 2011. Annual report and financial statements. Available at: http://corporate.marksandspencer.com/documents/publications/2011/annual% 20report%202011 Accessed on 6th January 2012. Myer Holdings Limited. 2011. Annual report. Available at: http://media.corporate- ir.net/media_files/IROL/23/231681/Myer_Holdings_Limited_2011_Annual_Re port_to_Shareholders.pdf http://investor.myer.com.au/phoenix.zhtml?c=231681&p=irol-reportsannual Accessed on 6th January 2012. National Retail Federation. 2009. Retail and Gross Domestic Product. Available at: http://www.nrf.com/modules.php?name=Pages&sp_id=1214 Accessed on 6th January 2012. Richer Sounds. 2011. Richer Culture. Available at: http://www.richersounds.com/information/aboutus_culture Accessed on 6th January 2012. Sears Holdings. 2010. Annual report. Available at: http://www.searsholdings.com/invest/docs/SHC_2010_Form_10- K.PDF#pagemode=thumbs&page=1&zoom=100,0,0 Accessed on 6th January 2012. Stephanie Anderson. 2012. Retail staff face underpayment: audit. Available at: http://www.canberratimes.com.au/news/local/news/general/retail-staff-face- underpayment-audit/2415988.aspx Accessed on 6th January 2012. Target. 2009, 2010 and 2011. Annual report. Available at: http://www.corporate- ir.net/Media_Files/IROL/14/144042/2009AR_pages72_180.pdf http://sites.target.com/images/company/annual_report_2010/documents/Targ et_AnnualReport_2010.pdf http://media.corporate- ir.net/media_files/IROL/14/144042/2011_Annual_Report_Financial_Statement s_pages_66_180.pdf Accessed on 6th January 2012. Copyright © The Business Education Center. 9
  • 10.  Tesco Plc. 2011. Five Year Financial Record. [Online]. Available at: http://ar2011.tescoplc.com/pdfs/financial/five_year_record.pdf Accessed on 6th January 2012. The Guardian. 2011. Asda profits hit by price war. Available at: http://www.guardian.co.uk/business/2011/oct/06/asda-profit-drop-tesco- grocers?INTCMP=SRCH Accessed on 6th January 2012. The Home Depot. 2010. Annual report. Available at: http://www.homedepotar.com Accessed on 6th January 2012. The Kroger Co. 2010. Annual report and financial statements. Available at: http://www.investis.com/ar/2011/financial/groupfiveyear/ Accessed on 6th January 2012. Walgreens. 2011. Annual report. Available at: http://files.shareholder.com/downloads/WAG/1612343002x0x513852/74B4B1 67-0B5C-46D3-A0A4-6435CEC99183/WALGREENS_2011_AR.pdf Accessed on 6th January 2012. Wal-Mart Stores Inc. 2011. Annual report and financial statements. Available at: http://www.investis.com/ar/2011/financial/groupfiveyear/ Accessed on 6th January 2012. Wm Morrison Supermarkets Plc. 2011. Annual report and financial statements. Available at: http://www.morrisons.co.uk/Corporate/2011/annualreport/_assets/download/p dfs/fullReport.pdf Accessed on 6th January 2012. Woolworths Food and Liquor +. 2011. Annual report. Available at: http://media.corporate- ir.net/media_files/IROL/14/144044/WWL0002_AR2011_WEB.pdf Accessed on 6th January 2012. Xe.com. 2011. UPDATE 1-Australia retail sales disappointingly flat in Nov. Available at: http://www.xe.com/news/2012/01/09/2387129.htm?utm_source=RSS&utm_m edium=TL&utm_content=NOGEO&utm_campaign=News_RSS_Art1 Accessed on 6th January 2012. Copyright © The Business Education Center. 10
  • 11. Why Did La Senza Go Into Administration?Lingerie specialist La Senza went into administration in the first week of 2012. It isamongst some 183 UK retailers including: Barratts, Clinton Cards, Habitat, HMV,Focus DIY, JJB Sports, Jane Norman, Mothercare, Oddbins, TJ Hughes andThorntons that got into trouble in 2011. This is in addition to the thousands ofretailers that went bust without making the headlines.Coincidentally, just a week ago, I visited La Senza in The Trafford Centre,Manchester; to take photos of poor visual merchandising examples for research formy forthcoming book on visual merchandising display.Why do many retailers get into trouble or go bust?Let‟s read what a La Senza spokesperson had to say about why La Senza went intoadministration:“Due to trading conditions in La Senzas high street locations and the overall macroenvironment which are having an adverse effect on the company, the board ofdirectors of La Senza has filed a notice of intention to appoint administrators.”The UK‟s retail guru, Mary Portas, recently released her High Street revival report,commissioned by the British Prime Minister David Cameron; into why the UK HighStreet is at risk of becoming extinct. According to her report, the main reason for thedemise of the High Street was that:“High Streets have reached „crisis point‟ with the rise of super-malls, out-of-townsupermarkets and internet shopping”.This follows another report by Colliers CRE which highlighted the “downward spiraland degenerating or failing” of the UK High Street.The willingness of the British Prime Minister to get directly involved in the retailindustry‟s crisis outlines the severity of the situation. However, the UK government isnot alone in expressing concern for the retail sector. The Australian government hasalso commissioned a report into the future of the Australian retail industry.Thousands of jobs depend on retail. Whenever, a retailer goes out of business,especially chain stores, they leave a large hole in the labour market. Therefore it isunderstandable that governments are concerned. Copyright © The Business Education Center. 11
  • 12. Did La Senza and the other big retailers that are in trouble, actually suffer because ofthe „challenging economic environment‟ or „challenging trading conditions‟, to adoptthe fancy language of retailers themselves?Is the UK High Street in danger of extinction because of reasons described by MaryPortas and the Colliers CRE report?I beg to differ.The core problem with most retail businesses in the UK and in many developedcountries is: they are run like non-profit organisations.The fundamental reason for the existence of any business is tomake profit. Any business that does not have profit as its core goalwill either fail or languish in mediocrity.It is true that businesses need to provide good customer service, take care of theiremployees and support the community. However, businesses do not exist for thosereasons. They exist solely to make a profit. It is only after they have achieved theircore purpose for existence that they will be able to fulfil their other responsibilities.Let me qualify this statement to avoid becoming „lost in translation‟. I did not saybusinesses exist solely to make money, I said profit. There is a big distinctionbetween making money and making profit.The retail industry is the only industry where increased sales is the key performanceindicator. I am writing this White Paper on Boxing Day; which is the day when mostretailers start their biggest sales of the year. The irony is that even though they willmake their biggest sales today, it does not necessarily mean that they will be makingtheir biggest profit margin today.When the dust has settled, and customers have returned home, as retailers tally thefigures; they will fall into the following categories:• Profitable retailer• Break even retailer• Losses retailer Copyright © The Business Education Center. 12
  • 13. How can retailers expect to make a profit by discounting theirmerchandise at 50% or 70%? Retail profit is an average of 3%. Eventhe most profitable retailers make between 3-5% profit.However, the large majority of retail profit margin is between 1.5 - 3%. Therefore, if aretailer is making a 3% profit margin and they discount their merchandise by 50%,how much profit will they be making?Don‟t take my word for it, the diagram below is the business growth framework forAccenture, one of the world‟s largest business consultancy firms. If a business sat onAccenture‟s sofa and said it was hearing voices, this is the diagnostic frameworkAccenture would roll out to investigate the company‟s malady and issue an invoicefor one million pounds thank you very much: Source: Accenture 2005As you observe in the framework, profit is highlighted in as one of the engines ofgrowth in a business.How many retail businesses have the Accenture business growthtemplate as a part of their business strategy? Copyright © The Business Education Center. 13
  • 14. The peripheral reasons most retailers go bust are follows:• Lack of “Level five” leadership• Lack of understanding of their target market• Lack of trained staff• Lack of skilled sales staff• Lack of product knowledge• Low wages• Bad customer service provision• Failing loss prevention strategyLa Senza went into administration because like most retailers it did not applyfundamental business principles. It did not focus on profit, instead it was focusedonly on increasing sales. A company that increases sales without increasing profitwill not survive. Copyright © The Business Education Center. 14
  • 15. Lack of Level Five LeadershipJim Collins, in his book “Good to Great”, introduced the concept of “level fiveleadership”. According to Mr. Collins;“The key to an organization becoming great is having a “Level Five Leader” -Someone who blends genuine personal humility with intense professional will -leaders at the other four levels in the hierarchy can produce high levels of successbut not enough to elevate organizations from mediocrity to sustained excellence”.This may sound conceptual or theoretical, but it is not. Many of the best retailexecutives are level four leaders. They produce a burst of results for a short periodthen fade away.Most retail executives are good sales people but bad businesspeople. They can sell ice to an Eskimo yet they do not know how torun a retail business.There is a fundamental difference between being a retail professional and abusiness person.Being a „retail‟ professional requires an understanding of all the nuances of retail.However, the ability to run a successful retail business requires the application ofcertain universal business principles. Such principles are absent from the majority ofthe failed or struggling retail organisations, because the leaderships in thoseorganisations lack an understanding of those principles.Tesco is the third most profitable business in the UK and the second most profitableretailer in the world. Why is Tesco, a retailer, the third most profitable business in theUK? Tesco once had a “Level Five Leader”, Terry Leahy, who transformed anordinary UK retail organisation into a global retail giant.The idea that retail executives are good sales people but bad business people mightsound counter-intuitive, therefore, let me expand on this concept with the followinganalogy.Many accountants are really good at what they do as accountants. They can takeone look at a statement of accounts and tell whether it is accurate. However, manyaccounting businesses fail. Why do accounting businesses fail when accountants Copyright © The Business Education Center. 15
  • 16. are good money managers? It‟s because accountancy is a profession and like mostprofessions; it is completely different from a business.A similar case can be made about retail executives. Many retail CEO‟s andexecutives are expert retailers who know the ins and outs of retail. They sleep andbreathe retail. They took the time to learn retail but did not take the time to learn theretail business; which is a major reason why many retail businesses fail.You can pluck a good business person from any business and make him a retailexecutive and he will be able to perform better than most retail executives. Thefundamentals of business are universal they never change.Let me expand on this point with the following examples:Microsoft is not just a successful company because they make the best software inthe world. It is successful because Bill Gates, a shrewd businessman, formedalliances with major corporations and government institutions.There were many search engines in existence before the arrival of Google. Why isGoogle more successful than all of them? Google‟s business model was and isbetter than the rest.Facebook was not the first social media site yet Facebook dominates social media.Why? Facebook has a better business model than the rest.McDonald‟s sells hamburgers. Does anyone believe that McDonald‟s is successfulbecause it makes the best hamburger in the world? No way! McDonald‟s is theworld‟s leading fast food company because it has the best business systems in theworld.My point is this, whether it is Microsoft, Google, Facebook or McDonald‟s it‟s nottheir products or services that makes these companies the leaders in their industrynor are they just successful because of the industries in which they operate; they aresuccessful because of their business models and strong leadership.The CEO of Apple could go to any retail chain and make it as successful as Apple.Success in business is not dependent on the industry. However, it is dependent onthe following four key components:1. Good leadership.2. Good talent.3. Good systems.4. Effective Marketing. Copyright © The Business Education Center. 16
  • 17. The reason why Tesco and Holland & Barrett are the third andfourth most profitable businesses in the UK is because they havethese four components in place.I did not say they are the third and fourth most profitable retailers in the UK, I saidthey are the third and fourth most profitable businesses in the UK.Business success transcends industry it is dependent on:• Effective leadership• Great people• Robust systems• Dynamic marketing systemIn most cases, only “Level Five Leaders” have the ability to develop these fourcomponents. Copyright © The Business Education Center. 17
  • 18. Lack of Understanding of Their Target MarketI visited Harrods for research for my books on store design and visual merchandisedisplay. Harrods, for anyone reading this White Paper who might not know this, isthe Mecca of retailing. Royalty, A-list celebrities and the „who‟s who‟ from around theworld fly into London just to shop at Harrods.You can now imagine my anticipation when I visited Harrods. In my mind everythingin Harrods was made of gold. I was disappointed, when I noticed a toy bus I hadpurchased for my son from Asda, was also being sold in Harrods. It was exactly thesame toy bus, in exactly the same packaging as the toy in Asda.A question popped into my mind, why is it that exactly the samebus, probably manufactured in exactly the same factory in China, issold in Harrods for twice the price that it is sold for in Asda?The answer is decisively simple – Asda sells a „toy bus‟, however, Harrods sells a„classy toy bus‟. There is a difference. This is marketing 101: people buy emotionallybut justify their decision logically.Customers who shop at Harrods do not shop there to buy Harrods‟ products; theyshop at Harrods to buy „elegance and class‟. Harrods sells them class even if it is„Made in China‟.How does Harrods pull this off? They achieve it with the combination of an elegantstore design and attractive visual merchandising displays. When you move from onedepartment to the next in Harrods it is like moving from one store to another. Theirability to use their store design to create the illusion of differentiation is one of thekeys to Harrods‟ success. Harrods understand their customers; they know what theircustomers desire so they design their store and display their products to satisfy thedesires of their customers.Marcus Buckingham, in his book “The First Thing You Need to Know”, wrote thatwhen he interviewed Sir Terry Leahy, who transformed Tesco into a global brand,and asked him what was the key to Tesco‟s successful transformation. Sir TerryLeahy replied that it was asking and answering the simple question: Whom do weserve? Copyright © The Business Education Center. 18
  • 19. When Tesco figured out whom they were going to serve, they changed their storelayout and products to serve their target market. As a result of those changes; Tescoincreased its number of checkout counters which reduced the amount of timecustomers spent queuing at the checkouts; ultimately resulting in a dramaticincrease in Tesco‟s footfall.Wal-Mart serves the person who lives: pay check to pay check.The Body Shop serves the ethical consumer.Waitrose and Holland & Barrett serve the consumer who wants to live longer.Ann Summers took merchandise once hidden in secret „adult‟ shops; made themtrendy and brought them to the High Street. They made a taboo subject acceptableto the mainstream.If I was to take my partner shopping at John Lewis she would probably phone mymother to inform her that I was having a nervous breakdown. She would not want tobe caught dead in a John Lewis‟ outfit. She describes John Lewis‟ clothingdepartment as a Bridget Jones museum where they store a collection of BridgetJones costumes.However, John Lewis continues to increase profits year on year because John Lewisunderstands their target market.Someone like my significant other might not want to be caught deadin John Lewis‟ outfit, but there are people in the UK, who loveBridget Jones‟ memorabilia, these people are John Lewis‟ targetmarket, so John Lewis cater for them.The most successful retailers understand their target market and show theirunderstanding of their target market through their store design and visualmerchandising displays.The retailers that go bust fail to understand this basic marketing concept.Most book retailers are struggling because they are still using the 1960‟s businessmodel in the Amazon era.Borders failed because it did not effectively develop its internet business and itinvested heavily in compact discs when music was going digital.WH Smith only makes money from its airport and train station sales. The rest of itsstores are struggling. Copyright © The Business Education Center. 19
  • 20. Waterstone‟s is also on a downward trend. Sales are down and customer footfall isin steep decline.Why are bookshops under threat? Amazon! They will all shout. Of course Amazon isthe cause because Amazon understands their market better than them. Since itseems Amazon is not going away anytime soon, are all book stores going to closedown?Will WH Smith and Waterstone‟s close down? Or will they rise to thechallenge and modernise their stores? Instead of complaining aboutAmazon, they need to redefine their target market, redesign theirservice delivery, redesign their customer service experience andredesign their stores to attract their target customers.On Christmas Eve, I had not done my grocery shopping and was dreading theprospect of entering a supermarket, knowing how packed they were going to be. Butas I drove past my local Lidl store, I noticed it was empty. I rushed in and completedmy shopping. As I drove back home a question came to mind; why is it, that even onthis day when most supermarkets are typically jam packed to capacity, was Lidlempty?The answer is that Lidl does not have a target market. One of their biggest sins wasmaking the decision to force customers to pay for carrier bags. Marks & Spencer canafford to do that because they appeal to a different class of customer.In Tesco and Asda, customers who are environmentally conscious have the option ofpaying for carrier bags. However, those who do not want to pay for carrier bags alsohave the option of getting free ones.This is because Tesco and Asda understand their customers. Lidl‟s seniormanagement, on the other hand, believed that having implemented a similar strategyin Europe, they can introduce the same in the UK. If the Brits do not like it, tough!Well, the Brits are showing their displeasure with their feet.I have tried to demonstrate with the above examples, that success or failure in retailis the result of the strategies every retailer adopts. Those retailers who understandtheir target market and cater to them will continue to move from success to greatersuccess, while those who roll the dice and hope that customers show up are theones who will struggle or go into administration.I hate to be the one breaking this type of news to the retail industry but I guesssomeone will have to do it: the internet is not going away. This means that retailers Copyright © The Business Education Center. 20
  • 21. are not only competing with one another, they are also competing with factoryowners in China whose name they have never heard. Shoppers are now orderingdirectly from warehouses and distributors, for example an individual can log on toeBay and order a pallet load of goods.Here is the good news: the majority of people still prefer to shop from physical retailoutlets. The question is how does an individual retailer ensure that shoppers areattracted to their store? It can be done by adopting the concept of the “Blue Ocean”strategy.Adopting the “Blue Ocean” strategy is the only salvation for book, DVD, music andfurniture retailers.What is “Blue Ocean” strategy? Blue Ocean strategy is “the simultaneous pursuit ofdifferentiation and low cost” which results in the creation of a new market spacemaking the competition irrelevant.The concept of “Blue Ocean” is practiced by the most successful businessesorganisations whilst struggling businesses pursue what is described as the “RedOcean” strategy. “Red Ocean” strategy is fighting to compete in the existing marketplace.The “Red Ocean” strategy is adopted by many of the book, DVD,music and furniture retailers. They are trying to compete againstthe internet and it is just not possible. A brick and mortar store cannever go head to head with the internet and win. It can never becheaper that the internet.However, to drive customer traffic to their stores they must become more innovativeand creative. For example a book store could arrange more book signings; of courseauthors want to sell their books so it is a win-win situation for all parties concerned.In order for the book signings to be a successful marketing platform for the bookstores it would be advisable for retailers to work in collaboration with the publishersfrom the onset in order for the book signings to be better promoted.Promotion of the book signings could take various formats such as making effectiveuse of social media sites, local press and captivating signage in and outside thestore. Copyright © The Business Education Center. 21
  • 22. Another idea could be to arrange book clubs for various genres of books, this wouldentice a variety of customers in to the store, these book clubs would also needpromoting in a similar way as described for the book signings promotion.The trick is to be innovative.Richer Sounds is a classic case of a retailer that has adopted the “Blue Ocean”strategy. They understand that people still prefer to interact with other people. Sowhilst other electronic retailers focus on price, they focus on excellent customerservice and staff product knowledge. Their “Blue Ocean” is excellent customerservice and superior product knowledge.For book, DVD or music retailers to compete in Amazon country, they need a “BlueOcean” strategy that goes beyond price discount. They need soul. They needunderstanding of the perception of their target market.• What do they want?• What are their hopes and fears?• What is their perception?I can order a book or DVD from Amazon and receive it the following day. I candownload music instantaneously from iTunes. There are millions of “me” in the world.What kind of “Blue Ocean” strategy can WH Smith or HMV devise to get me awayfrom my laptop? It takes me half an hour to drive to the city centre, pay for parking,spend another half an hour in WH Smith or HMV and another half an hour to driveback home.The 64 million dollar question is:What can WH Smith or HMV do to make it worth my while?Let me give them a clue, I could order my groceries online, however, I choose to goto the supermarket. My reasoning? That is for book, DVD, electronic and furnitureretailers to figure out. They probably need to visit Starbucks, it might just hold thekeys to unlocking their creativity.The only point of differentiation that most retailers know is pricereduction. Price reduction is not a business strategy, it is a deathwish. Copyright © The Business Education Center. 22
  • 23. Lack of Trained StaffA friend of mine is a manager at Tesco. He knows the profit margin of each andevery product in his store. Why does knowing these profit margins matter? For anumber of reasons. Firstly business is about making profit and secondly it highlightsthe significance of “training” to retail success.As a manager at Tesco, my friend receives frequent periodic training on everyaspect of running a retail business. Little wonder Tesco is the second most profitableretailer in the world and the third most profitable business in the UK.Tesco, like most successful retailers, understand the significance of staff training tothe success of their business. Subsequently, they ensure that their staff areconstantly trained.It never ceases to amaze me how an individual will open a retailstore worth millions of pounds only to have the store managed bysomeone they are unwilling to spend a few hundred pounds to train.The two common excuses retailers give for not training their staff are:1. It is expensive.2. Absentee cover.I‟m probably the only person who doesn‟t get it, just imagine this scenario:Someone, somewhere, is leaving his multi-million pound retail store in the hands ofan individual and he says it is too expensive to spend a few hundred pounds toprovide that person with the requisite training to manage his store well, can youimagine that?What am I missing?!And these same retailers complain that the reason why they have to call in theadministrators is because of harsh trading conditions.No it is not!It is because they did not provide their staff with the requisite training to run theirretail organisation well. Copyright © The Business Education Center. 23
  • 24. Lack of Sales TrainingAccording to a survey commissioned by Blue Martini Software; retailers could belosing up to £8bn per year as a result of inadequate staff training. The surveyrevealed that 84% of potential customers who left stores without buying said theywere going to buy from another retailer.This means that the store they entered was unable to sell them on yes so they soldthem on no.As many as 95% of retail employees have never received any form of sales andmarketing training. As a result of their inability to sell, most retail staff just stand bythe sidelines as customers examine merchandise and cross their fingers hoping theywill decide to buy.Retailing is about selling. This means that anyone in retail should be, at the veryleast, given basic sales training.If retailing is about selling and 95% of retail staff have never received any form ofsales training, surely there is a linear relationship between lack of sales training andretail businesses going bust?It is like a medical doctor who has never been to medical school, how many peoplein this world would want an untrained doctor to treat them? Copyright © The Business Education Center. 24
  • 25. Lack of Product KnowledgeCovert sting operations, conducted by „Which?‟, the consumer organisation, in 2011,revealed that many retail employees lacked knowledge of the products they sold.Just 8 out of the 154 stores investigated, scored an excellent mark. Surprisingly, nota single well known High Street brand was amongst those eight.In this information age where consumers have access to vast amounts of informationat their fingertips, one would expect retailers to realise the importance of productknowledge for their staff.Nowadays, many shoppers search on the internet for products prior to stepping footin a shop. They read information such as product specification, where to get the bestdeal and customer reviews. They visit shops to basically clarify what they havealready read. If the store staff are unable to answer their questions, there is nochance that they will be able to sell to them.Here is the secret, despite the fact that people conduct research on the internet, thelarge majority still don‟t trust information found on the internet. That is why books arestill highly rated even though the information in most books can be found on theinternet.People still trust other people and prefer to interact with people. This is the reasonwhy despite the internet, bricks and mortar retailing will still survive. However, thereis a new dynamic and retailers need to understand this.The consumer of today is better informed than the consumer of tenor twenty years ago. Consequently, today‟s retail staff needs to bebetter informed than the retail staff of ten or twenty years ago. Onecannot navigate the 21st century with a 19th century skill set – itwill not work.Hence the reason why even though many electronic retailers are going bust, RicherSounds has been featured in the Guinness Book of Records for the past 20 years ashaving the highest sales per square foot of any retailer in the world.Coincidentally, they continue to top the „Which?‟ survey for excellent customerservice and product knowledge. Copyright © The Business Education Center. 25
  • 26. I have always argued that if anyone was to open another DIY store in the UK ,thatwas in direct competition with B&Q; they would put them out of business within a fewmonths. Every time you enter a B&Q store and ask the staff about the location of aproduct, their favourite line is always: they have just rearranged the store. They haveno idea where their products are located in the store let alone what the products do.This is a trade store and many of their customers are tradesmen, therefore youwould expect B&Q to provide its staff with sufficient product knowledge to be able toimprove their customer experience in their stores. Copyright © The Business Education Center. 26
  • 27. Bad Customer Service ProvisionThese days, the only reason I visit my local PC World store is to buy ink for myprinter. This is due to the fact that it is the only retailer in my locality that sells thetype of ink cartridge suitable for my printer.Every time I enter a PC World store I encounter a similar level of service. I amalways forced to queue up for a long time at the checkout, waiting for staff to serveme. Even when the store is empty I have to wait to be served, whilst there will be agroup of staff chatting a few meters away from the vacant checkout.PC World and her sister company Curry‟s are struggling and their managementwonder why? I am sure if they were to go bust the CEO would blame harsh tradingconditions. The fact that his store rank at the bottom of many customer satisfactionsurveys would not be seen as a factor in their demise.In this “Long Tail” retail environment where consumers are constantly presented withendless choices, one would think that retailers, especially High Street retailers wouldrealise the importance of excellent customer service and try to instil it as afundamental part of their business strategy.30 to 40% of people will buy solely on price. The majority 70% of people will buy onquality and convenience. Even though the retail industry is in crisis, the luxury sectorof the industry is still growing strong. This is because no matter what the economicsituation is people will still shop. The only question is where will they shop.Luxury retailers understand this fact and train their staff in excellent customer serviceprovision.I have noticed in my local Asda that when staff are asked for information, they do notjust point, they walk customers to the location and ask them if there is anything elsethey can do for them.People go to restaurants where the food is terrible but never complain because ofthe attitude of the staff. However, if it was the other way around and the food tastedgreat but the service sucked, they would be highly unlikely to return to thatrestaurant.Good customer service is a key component to the success of many of the mostsuccessful retailers whilst bad customer service provision has been one of the majorcontributing factors for the failure of many retail ventures. Copyright © The Business Education Center. 27
  • 28. Low WagesA friend of mine, who is a retail consultant in the US, said that in his office theyalways joke that one day they might write a book on, „How to get out of retail‟; he isconvinced it would be a bestseller!Why does my friend believe that a book on „getting out of retail‟ would be abestseller? Answer: many retail employees want to get out of retail.They view retail as a „transitional job‟. As a matter of fact many retail employees arepart-time workers. Many are students who view retail as a means of getting „pocketmoney‟ whilst in college or university. With the exception of those who are actuallystudying retail, the majority hope they will leave retail as soon as they complete theirstudies to find a „better job‟.One of the reasons for this is a result of low wages in the industry. I know that I amtouching some raw nerves here, but bear with me as I try to make the case for whylow wages are neither good for the staff nor for the retail business ownersthemselves.Low wages encourage:• Staff dishonesty• Disloyalty• Unprofessionalism…This results in bad customer service and poor productivity.One of the key factors responsible for the failure of most retail businesses is theincompetency of middle management. I do not use the word incompetency to meanany disrespect to middle retail managers, but the fact is the large majority of them donot have the slightest idea about the concept of running a business.The main reason for this is that many middle managers rise through the rankswithout the appropriate training just to „avoid low wages‟.One of the major reasons highlighted for the demise of „Safeway‟ was it had moremanagers than store staff. Imagine an army with more Generals than Infantrysoldiers. The manager to store assistant ratio was about 4:1. It has been suggestedthis occurred as managers would promote their friends to managerial positions toavoid low wages. Copyright © The Business Education Center. 28
  • 29. When I worked at Tesco, all of us dreamt of becoming a manager because it was theonly way we were going to be able to get good wages. The managers get double payfor working bank holidays and are offered more shift days than the store assistants.I am not suggesting that the retail industry increase staff wages. All I am saying islow wages have an adverse effect on the industry and it is one of the reasons manyretail businesses go bust.Low wages grant retail employees reasons to engage in dishonesty. Whenemployees feel that they are not being treated fairly there is the tendency forincreased dishonesty. If you are a retail store owner who expects your staff tomanage millions of pounds on your behalf and you pay them a few hundred poundsa month, chances are they might be tempted to steal from you.Therefore, it is vital, if you are going to be entrusting people with your assets, thatyou provide them with sufficient incentives to make them want to protect it on yourbehalf.Disincentivized staff, as a result of low wages, will not be inclined to provide goodcustomer service. When people work because they have to, they will not provideyour customers with the level of customer service they deserve. When yourcustomers do not receive the level of customer service they believe they deserve,they will choose to take their custom elsewhere.Retailers are trying to adopt the McDonald‟s model of employing high schooldropouts and training them to be successful in retail. There is nothing wrong with thisprinciple. However retail does not have the same system as McDonald‟s.You can pluck someone off the street and place him in a McDonald‟s to work and hewill be fully functional within a few minutes. The reason for that is the system willmake up for his weaknesses. Retail does not have a system comparable toMcDonald‟s, therefore, cannot practice a similar recruitment process.I cannot stress this enough: having the right people is a key element in the successof every successful business. Any business that does not have the right people willeither languish in mediocrity or fail. Recruiting and retaining good staff is one of thelargest expenditures for many businesses, getting it right can pay dividends.Part of the process of recruiting and retaining good staff is ensuring they are fairlycompensated and incentivized.As the saying goes, you get what you pay for. Copyright © The Business Education Center. 29
  • 30. Harrods’ Success SecretHarrods is one of the most successful retailers of all times. In January 2011, despitethe global economic downturn, the retailer‟s sales were in the region of £1bn. Whatis it that makes Harrods more successful than most retail organisations?Harrods success can be attributed to the following three factors:1. Good store design.2. Attractive visual merchandise display.3. Effective loss prevention strategy.Harrods‟ store design is in a class of its own. It is unique, innovative and clever. Oneimportant element of their store design is the concept of the stores inside stores. Thestore is designed in such a way that as customers move from one department to theother, it gives the feeling of moving from one store to the next in a shopping mall.Whoever conceived that design concept provided Harrods with a huge competitiveadvantage over it competitors.Harrods‟ visual merchandise displays are as attractive and inviting as merchandisedisplays can get. As customers enter one designer outlet to another, they observe acompletely different display representative of that designer. It is as if the designersthemselves went into Harrods to arrange the displays.Store design and visual merchandise displays need to serve four objectives:1. Attract potential customers as they pass by the store.2. Entice those potential customers to enter into the store.3. Maintain their interest whilst they are in the store.4. Persuade them to buy.I believe Harrods‟ ability to effectively utilise these four principles in their store designand visual merchandise displays has been responsible for its phenomenal success. Copyright © The Business Education Center. 30
  • 31. In his book “Blink”, author Malcolm Gladwell introduced the concept of think withoutthinking. “Blink” "the power of thin slicing” and “rapid cognition” is the type of thinkingprocess that occurs in the blink of an eye.In his first book “Tipping Point”, Mr. Gladwell introduced the concept of the tippingpoint where little things make a huge difference.As one walked around Harrods it is evident that their success does not derive fromtheir „Made in China‟ products, that can be found in most stores in the UK. Theirsuccess derives from their ability to apply the principles from “Blink” and the “TippingPoint” to their store design and visual merchandise displays.Harrods success stems from little things making a big difference like having lots ofstore associates within easy reach of every customer and extraordinary use ofmannequins.Why do people buy? We all buy for diverse reasons. The human thought process iscomplex and irrational. Even though we try to rationalise our actions based uponartificial environmental factors, the reality is we all do things for the same threereasons:1. Status.2. Survival.3. Sex.The ability to design a store or create visual merchandise displays that incorporateall these elements is one of the determining factors for the success of Harrods andmany of the world‟s most successful retailers.The key factor to Harrods‟ success though is its ability to remain profitable. Profit isking in business. In retail the formula for making profit is to increase sales andreduce shrinkage.Increasing sales requires good store design and attractive visual merchandising.Reducing shrinkage requires an effective loss prevention strategy.This is what Harrods and the most successful retailers have over the rest of the retailindustry, their ability to simultaneously increase sales and reduce shrinkage. Mostretailers know how to increase sales, however when it comes to reducing theirshrinkage, they are challenged.Getting these two right is the fundamental principle of retail success. No retailer cansucceed without simultaneously increasing sales and reducing shrinkage. Copyright © The Business Education Center. 31
  • 32. Why do shrinkage reduction or loss prevention measures fail in most retailorganisations?• Lack of understanding of the subject.• Senior management‟s failure to prioritise.• Outsourcing loss prevention without a mechanism for accountability.• Inexperienced loss prevention managers.• Ineffective use of loss prevention technology.Harrods is the first retail store that I have ever entered that has no visible blind spots.I am not saying that there are absolutely no blind spots as I managed to spot a few.However, the difference with other stores is that they are not visible tounprofessional eyes.Anyone deciding to shoplift in Harrods would have to be:• A professional shoplifter or part of an organised retail crime syndicate.• Really brave.• Really stupid.Products are displayed in such a manner that each department seems wide open.Store staff can stand in one end of a department and have a clear view of the entiredepartment.There is CCTV in every corner of the store; in addition to store assistants buzzinglike bees, making it difficult for anyone who might intend to shoplift.I am not saying that it is impossible to shoplift from Harrods because shopliftingprevention requires the implementation of a combination of strategies. However, bydesigning their store in the way that they did, displaying their products in the mannerthat they are displayed and taking other loss prevention measures, Harrods hasdrastically reduced the possibility of shoplifting. Copyright © The Business Education Center. 32
  • 33. To increase sales yet fail to reduce profit draining activities is falseeconomy. Many retailers feel loss prevention is something that theycould do if they had the resources. The reality is: it is somethingthat they cannot afford not to do because no retailer can becomeprofitable without implementing effective loss prevention measures.90 to 95% of retail loss prevention department managers are ex-service personnel.As a result of their law enforcement background, they take the law enforcementapproach to their work. They focus mainly on arresting shoplifters and dishonestemployees.While it is true that shoplifting and employee theft accounts for almost 70% of retailshrinkage they are not the sole cause of shrinkage. Furthermore, shoplifting andemployee dishonesty cannot be tackled by solely arresting individuals. Preventativemeasures such as good store design and visual merchandise displays, as Imentioned in the case of Harrods, are required to make any preventative measureeffective.However, due to the fact that the majority of retail loss prevention managers knowlittle to nothing about store design and visual merchandising, they are unable toincorporate those aspects into their loss prevention strategies. Hence the reasonwhy most loss prevention measures fail, resulting in the failure of most retailorganisations.The average retailer makes a 1% net profit out of each dollar and the averageindustry shrinkage percentage is 2.6%. This means that shrinkage is almost threetimes the average retailer‟s profit margin. By reducing retail shrinkage to 50% - from2.6 cents to 1.3 cents, a retailer could more than double his profits: from 1 cent to 2.3cents. (Crosset Company newsletter. June 2010). Copyright © The Business Education Center. 33
  • 34. Some retailers outsource their loss prevention department to outside contractors. Aslaudable as this may seem, it is a seriously flawed idea because retailers areincapable of clearly articulating their expected outcome.When a job is outsourced, there is usually an expected outcome. However, if theretailer outsourcing the job cannot articulate their expected outcome, it is difficult tohold the contractor accountable.The ineffective use of loss prevention technology is another reason for the failure ofmost retail loss prevention measures. Prior to purchasing loss preventiontechnologies, the following questions need to be answered:• What problem(s) will the technology solve?• What are the functionalities of the technology?• What policies and procedures need to be modified to accommodate the new technology?• Is the technology future proof?To increase sales without simultaneously combating profit drainingactivities is false economy. Wal-Mart founder Sam Walton oncedescribed retail shrinkage as a “profit killer”. He was right. Highshrinkage is responsible for the death of many retail organisations. Copyright © The Business Education Center. 34
  • 35. Prescription: How to Turn Retail Failure into SuccessI once worked as a store detective for one of the UK‟s top ten retailers. Many of theincidents of shoplifting that took place during my time at this retailer were not theresult of shoplifters outsmarting us, rather they were a result of the store design orthe policies and procedures that the retailer had in place.I remember working in stores where the toilets were located outside the store. Thismeant that a shoplifter could literally walk out of the store with a trolley full ofmerchandise and could not be legally arrested because he could claim he was goingto the toilet. On many occasions I was the only security personnel assigned to the30,000 sq. ft. store with multiple exits.On Sundays, we opened the entrances at 10:30 to allow customers to startbrowsing. However, we were scheduled to start at 11:00. When we started at 11:00,we would notice people pushing trolleys full of merchandise out of the store.Someone in the head office, in their infinite wisdom, decided it was more costeffective to leave the store at the mercy of shoplifters than make a half an hourpayment for security. This retailer is one the top ten retailers in the UK, yet seniormanagement were unable to devise a coherent strategy for profit protection.I once consulted a $25bn retailer. As I perused the company I noticed that not asingle person in the company knew their shrinkage figure therefore not even thefinancial director knew the profit margin of the company.According to Dunn and Bradstreet “Of the small businesses that fail, 90% do sobecause of a lack of skills and knowledge on the part of the owner”.Based upon my experience in retail, I believe it would not be toomuch of a fat claim to make that 90% of retail failures are the resultof a lack of skills and knowledge on the part of senior retailmanagement.There are circumstances beyond the control of the individual retailer that they can donothing about. There are circumstances in which location and demographic changesaffect the retail organisation. Yes it is true that people would rather go to Asda orTesco to buy meat than to their local butcher because of price difference. Copyright © The Business Education Center. 35
  • 36. It would not be fair to suggest that all retail failures are the result of bad leadership orincompetency. However, what I have tried to point out is that in the majority of cases,especially in the case of High Street retailers, the failure can be directly linked totheir inability to embrace change.The problems of major book, DVD, music and electronic retailers do not rest solelyon difficult trading conditions, rather they rest on their inability to grasp the concept ofthe “Long Tail”.The “Long Tail”, a concept popularised by author Chris Anderson in his book, “TheLong Tail: Why the Future of Business Is Selling Less of More”, examines thechanging consumer behaviours based upon the changes in distribution curve.The proliferation of niche markets brought about by the internet has completelyaltered the factors of distribution. Consumers are exposed to more choices than everbefore in the history of mankind.While writing this White Paper, I decided to test the “Long Tail” theory. I keyed intoGoogle: “how many types of breakfast cereals are there”. Result: thousands. Theywere arranged in alphabetical order and it was from A to Y. The averagesupermarket carries thousands of different product lines.Furthermore, with the internet consumers are becoming more and moreoverwhelmed with choices. Amazon and its distributors carry more inventory than alot of High Street retail organisations combined.In the “Long Tail” century, how can retailers survive? They can survive by adaptingto their environment.In the “Evolution Theory” Charles Darwin introduced the concept of “Survival of thefittest”. The fittest in Mr. Darwin‟s lexicon is not the strongest or the fastest but thosewho are better equipped for survival or those who are better adapted for theirimmediate, local environment.We are already witnessing the “Evolution Theory” at play in theluxury market. Despite the downturn in the economy, luxuryretailers are still raking in profit. Even in Spain where the country ison the brink of collapse, the luxury retail sector is booming.The excuse might be because the rich are getting richer so of course the luxurymarket will continue to boom. This is partly the case but the main reason is luxuryretailers are more adaptive to the changing retail environment. Copyright © The Business Education Center. 36
  • 37. Luxury retailers run their organisations like a real business with good system, goodpeople, good leadership and effective marketing system. The luxury retailers that arefailing are those that have both luxury brands and non-luxury brands and they bringthe non-luxury culture into the luxury market.In order for the retail industry to survive, firstly retailers need to understand that theirproblem is not somewhere out there, it is right in their board rooms.Secondly, the industry needs to come to the realisation that there is now a newproblem on the horizon and they cannot solve a new problem with old solutions.What is the new problem?The new problem is technology and the internet. Just as technology changed themanufacturing and automotive industries, technology is changing the retail industry.Online shopping grew by 14% in 2011 whilst bricks and mortar retailsales grew by just 1.4%. According to research, conducted by foodand grocery analysts IGD, online grocery shopping is expected torise to £11.2bn by 2016. The research also revealed that more than44% of adults will be shopping online for their groceries in the nextten years.The internet is here to stay and it is going to have a tremendous effect on theindustry. As new technologies make our lives easier, it also produces an adverseeffect on the world around us.The High Street is in ruins, retailers big and small are going out of business,however, instead of the industry screaming “Chicken little the sky is falling” it needsto respond to the threat by coming up with innovative “Blue Ocean” strategies.The difference between the few successful retailers such as Tesco, Wal-Mart, TheBody Shop, Harrods, Ann Summers, Holland & Barrett and struggling retailers suchas La Senza, Jane Norman, Mothercare, JJB Sports, Clinton Cards, Thorntons andHMV is that successful retailers understand that change is constant, therefore, theyare constantly evolving to stay ahead of change while the struggling retailers remainstatic hoping that change will not last.Albert Einstein once said “Problems cannot be solved by the same level of thinkingthat created them.” Copyright © The Business Education Center. 37
  • 38. The retail industry cannot navigate the 21st century with 19th century thinking or skillsets. It would be like riding a horse on the motorway. I don‟t need to tell you whatwould happen to anyone who decided to ride a horse to London on the motorway. Copyright © The Business Education Center. 38
  • 39. Retail Blue Ocean Strategy Framework RED OCEAN STRATEGY BLUE OCEAN STRATEGYSelling to a broad demographic market. Selling to a segmented market.Focus on only increase sales. Simultaneously focus on increase sales and reduce shrinkage.Ignoring profit draining activities. Focus on acquisition and protection of profit.Untrained employees Implementation of periodic training of employees.Not prioritizing customer service Implementing excellent customer service as a marketing strategy.Not providing store associates with sales Store associates are trained on how totraining close sales.Professional retail leadership Professional retail and business leadership.Loss prevention managers lack business Loss prevention managers possessskills. excellent business skills.Loss prevention strategy focuses on Loss prevention strategy focusesshoplifting and employee theft. shoplifting, employee theft, policies and procedures, low staff productivity, procurement error, administration error.Ignoring store design as a sales and Store design plays a key role in salesmarketing strategy. and marketing strategy.Ignoring visual merchandising as a sales Utilising visual merchandising as a keyand marketing strategy. component of sales and marketing strategy.Focus only on price reduction to drive Increase value proposition to drive sales.sales. Copyright © The Business Education Center. 39
  • 40. The Retail Success HexagramListed below are the best retail success strategies used by the most successfulretailers in the world.There are six steps for success in retail. These are the same steps successfulretailers use time and time again to remain at the top of the retail ladder. Thoseretailers who have failed, or are struggling, are the ones who have not mastered theretail success hexagram.The steps are as follows:1. Effective sales and marketing strategies.2. Excellent customer services.3. Great employees.4. Quality merchandise. Copyright © The Business Education Center. 40
  • 41. 5. Attractive yet secure store design & visual merchandise display.6. Trained Employees.Effective Sales and Marketing Strategies:Retail success formula 101: Know thy customer.Marketing 101 is identifying your target market.Marketing is about branding. What is branding?Branding is the story of your retail store, your customer experience and the imageyou want to be associated with.• Body Shop: ethics.• Harrods: class and elegance.• Holland & Barrett: health. La Senza, WH Smith, HMV…ah what was the question again?Excellent Customer Service:Retail success formula 102: Redesign service provision.I know a sportswear retailer that advertises on billboards all over the UK. Heavenknows how much they are spending on those advertisements in prime locations allover the country. Yet when customers frequent their stores, there is always fewerstore associates to serve them. Furthermore, the store associates on duty lack anyknowledge about the merchandise in the store.When you enter Harrods you think you are in communist China, with their storeassociates visible in every corner of the store. People go to retail stores becausethey want to interact with other human beings. When they enter the fitting rooms totry on clothes they want to know that there will be another human being there to tellthem how beautiful they look on them. They want to know that when they need helpthey can speak to somebody. Copyright © The Business Education Center. 41
  • 42. Great Employees:Retail success formula 103: Recruit great people.I relayed the story of my Tesco Manager friend who knows the profit margin of everyproduct in his store. I consulted a large multi-billion dollar retail organisation. As Iploughed through their books I noticed that they had a profit margin of about 10%and a shrinkage level of 0.8% or something around that figure.I thought to myself: this company has pretty impressive figures; better than the bestretailers in the world. However, as I investigated further, I came to realise that not asingle individual within the entire organisation knew how to calculate their shrinkagepercentage which rendered their profit figures inaccurate.When a retail middle manager is incapable of calculating figures as essential asprofit margin and shrinkage level, that organisation is in serious trouble. No businesscan succeed without great people, the industry needs to recognise this simple factand get to work on recruiting the right people for their organisations.Quality Merchandise:Retail success formula 104: Stock good quality products.It goes without saying that having quality merchandise is fundamental in retail. Oneof La Senza‟s biggest sins is the design of their lingerie. Their products are so boringand tasteless it makes you wonder who would want to buy them.People buy emotionally and justify their decision logically. A piece of lingerie that isattractive and pleasing to the eyes provides women with the confidence that it wouldlook good on them. When you have lingerie that is not very attractive you are alreadyout of business.Jane Norman got into trouble because they kept recycling their product lines everyseason. Instead of refreshing their stores by displaying new product lines eachseason, they store old stock, that is then displayed the following season. Copyright © The Business Education Center. 42
  • 43. Attractive Yet Secure Store Design & Visual Merchandise Display:Retail success formula 105: Retailing is showbiz.Most retailers forget that retailing is about sales and marketing. The most effectivemarketing strategy a retailer has at his disposal is a well-designed store andattractive merchandise displays. When there are two or three hundred stores in ashopping centre, the difference between someone deciding to enter or pass by aretail store can rest on the storefront design.When customers are in the store there needs to be reasons for them to stay longerin the store because the longer they are in the store the higher the chances are ofthem purchasing. The three main aspects of a store that keep customers engagedfor longer are:1. A store design that enables good customer flow.2. An attractive and good lighting system.3. Overall atmosphere of the store.Apple stores are always packed as customers just love hanging out in their stores.The Early Learning Centre is a children‟s toy store. I have been to a few of them andnoticed there is no space for the children to sample toys and play with them. Youcannot have a toy store that is compact; you lose the potential for sale.Trained EmployeesRetail success formula 106: Business is not common sense.To leave a store in the hands of an untrained person and hope that they will usecommon sense to manage it well is not a particularly smart move. Simply becauseeveryone can kick a football does not mean that everyone can play football.Business is a skill and like any skill, it must be learnt. Selling is a skill it cannot belearnt by osmosis. There is nothing like a natural born salesman. The best salesmenhave some form of training in addition to their talents.The retail industry is at a crossroads. A lot of changes are going to be forced uponthe industry in the next few years. The industry can either master those changes orbe a victim of them. We can reinvent our industry, or we can decide to go the way ofthe manufacturing and automotive industries. Copyright © The Business Education Center. 43
  • 44. I have given the retail industry cement and a bucket they can choose to build astepping stone or a stumbling block. It is my hope that we make the right choice.One thing I can absolutely guarantee is those retailers that choose to implement myrecommendations, will be celebrating at the end of 2012 and those that don‟t willhear the fat lady sing for their organisation. Copyright © The Business Education Center. 44
  • 45. About Romeo RichardsRomeo Richards is the founder of The Retail Education Center, a division of TheBusiness Education Center. The Retail Education Center provides the most in-depthand comprehensive retail profit protection training.He is also the creator of the Retail Success Hexagram, a framework that teachesretailers how to:  Increase sales  Increase staff productivity  Reduce shrinkage  And ultimately increase profit.He is the author of:  84% Most Effective Strategies for Increasing Retail Profit  48.8% The Most Effective Strategies for Reducing Retail Receiving Shrinkage  43.5% The Most Effective Retail Profit Protection Strategies  27.9% The Most Effective Retail Shrinkage Reduction Technologies  27.8% The Most Effective Retail Employee Theft Reduction Strategies  24.5% The Most Effective Non-Perishable Shrinkage Reduction Strategies  15.6% The Most Effective Perishable Shrinkage Reduction Strategies  14.3% The Most Effective Shoplifting Reduction Strategies  12.24% The Most Effective Retail Employee Error Reduction StrategiesRomeo has also written numerous articles, whitepapers and best practices on retailloss prevention and profit protection. In addition to more than one hundredinstructional videos on retail profit improvement that can be found online.Romeo has worked with some of the UK‟s largest retail organisations such as Tesco,Marks and Spencer and Brantano. He has provided training and consultation to thelargest retail organisation in the Middle East. Copyright © The Business Education Center. 45
  • 46. His forthcoming books on store design, Store Design Blueprint – How to Design anAttractive But Profitable Store, and visual merchandising, Visual Merchandise – Howto create a Beautiful yet Profitable Display, will be published in February 2012. Copyright © The Business Education Center. 46

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