San Francisco Gift Show Summer 2010 Retail benchmark Presentation


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Learn what benchmarks are and how they can help you plan and execute a strategy to deliver maximum profits to your retail business

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San Francisco Gift Show Summer 2010 Retail benchmark Presentation

  1. 1. Creating Financial Success For Your Retail Business: Understanding and Using Retail Benchmarks San Francisco International Gift Fair August 1, 2010 What Is Benchmarking? A Systematic And Continuous Process Of Searching, Learning, Adapting And Implementing The Best Practices From Within Your Own Organization, Or From Other Organizations, Towards Attaining Superior Performance Emphasis On Market Share And Comparative Data On Sales And Operations What Is A Benchmark? • A Measured “Best-in-class” Achievement, Recognized As The Standard Of Excellence For A Particular Process • A Reference Point Or A Standard Against Which Other Performance May Be Measured Against • Examples May Include: Rate Of Customer Complaint - 5% Employee Satisfaction Rate - 95% Information Retrieval Time - 5 Seconds Customer Response Time - 30 Seconds Gross Margin - 50% Annual Sales Per Square Foot - $500
  2. 2. Why Should a Retailer Understand And Utilize Benchmarking? Helps Retailers To Increase Performance Also Helps To: • Identify Potential Internal Weaknesses • Provide Guidance For Improvement Planning • Verify Strengths And How Further Exploiting Them • Utilize Best Practices To Improve The Operation Of Your Organization • Spur Innovation And The Development Of New Product And Merchandising Concepts • Improve Cost Structures And Competitiveness • Help Recognize Opportunities For Outsourcing And Strategic Alliances Benchmarking Can Provide Important Information To Drive Accelerated Business Improvement Without Objective With Benchmarking Benchmarking To Become More Evolutionary Change Understanding Of Adaptive Competition Ideas From Proven Practices Implement Industry Best Few Solutions, Frantic Many Options, Superior Practices Catch Up Activity Performance Defining Customer Based On History, Gut Market Reality, Objective Requirements Feeling Or Perception Evaluation Establishing Effective Lacking External Credible Unarguable, Goals & Objectives Focus, Reactive Proactive Developing True Pursuing Projects, Solving Real Problems, Measures Of Strength/Weaknesses Based On Industry Best Productivity Not Understood Practices Benchmarking Exists In A Number Of Different Forms, Each Offering A Differing Perspective And Usefulness Industry General • Typically High Level And Industry Broad • Offers A Macro-economic Perspective • Normally Offers Only A General Perspective To Where And How Your Business Compares To Benchmarked Firms Industry Segment Specific • Represents Data From “Like Firms” That Operate In The Same Business Environment • Generally In The Same Manner As Your Firm • Offers Comparable Database And A Higher Level Of Credibility Operating Metrics • Very Specific, Typically Financial Line Item Detail • Offer “Eye Opening” Perspective When Significant Variances Are Discovered
  3. 3. Ensure You Obtain The Proper Benchmark Before Assessing Store Performance Example: Sales Per Square Foot Can Vary Dramatically Within Retail Category Type Of Apparel Retailer Store Sq Ft Sales/Sq. Ft. Women’s Boutique 1,500 - 3,000 $400 - $700 Men’s Boutique 2,000 - 8,000 $150 - $300 Shoes 1,200 - 2,500 $250 - $475 Closeout Department Store 12,000 - 30,000 $100 - $150 Upscale Department Store 120,000 - 180,000 $425 - $825 Drug Store 15,000 - 22,000 $125 - $215 Convenience Store 2,000 - 3,000 $325 - $650 Gift Shop 1000-3000 $200 - $900 Make Sure You Obtain The Appropriate Statistic For Your Store Size and Type Source: hdl company survey, ICSC Retailers Should Be Continually Focused On Building Value By Seeking Out Improvements In Performance Change in Business Valuation Return On Investment Investment Growth Sales Costs/Margin Working Capital Capital Expenditures “Selling More” “Keeping More of Every Dollar Sold” “Tying up Less Capital for Every Dollar “Growing Sold” Value-Creating Formula” Benchmarks Enable Retailers To Examine Different Aspect Of Business Performance And Effectiveness Sales Effectiveness Is The Business Achieving Its Optimal Level Of Sales? Merchandising Effectiveness Is The Utilization Of Inventory, Product Mix And Merchandising Strategies Maximizing Gross Profit Potential? Marketing Effectiveness Are The Investments In Advertising And Promotions Generating An Appropriate Level Of Incremental Sales And Profits? Management Effectiveness Are Investments In Non-sales Generating Overhead Appropriate? Capital Effectiveness Are Working Capital And Assets Generating Market Comparable Returns?
  4. 4. Utilizing Benchmarks In Concert With Best Practices Enables Optimum Improvement Opportunities Best Practices Are: • Outstanding Business Practices Which Have Been Identified As Contributing To Significant Improved Performances In Leading Companies Within An Industry • Industry Publications, Organizations, Trade Shows, Webinars – Be A Continual Learner And Seek Ways To Apply To Your Business Idea • Join Or Form A Cop (Community Of Practice) - A Small Group Of People Who Comes Together To Explore Opportunities For Benchmarks And Best Practices Sharing On Common Interest Areas Retail Business Strategy Informs The Development of Value Drivers And KPI’s Required For Benchmarking Strategy Key Value Drivers External and Key Internal Performance Benchmarks Indicators Specific Benchmarks Will Enable The Identification of Implications, Solutions And Potential Business Impact Desired Obtain Impact Benchmarks Continuous Business Improvement Design Identify Solutions Implications Improvement Cycle Should Repeat Itself Periodically
  5. 5. Various Internal And External Benchmarks Can Be Utilized To Measure Retail Performance Key Measures: • Sales Per Transaction • Sales Per Marketing Activities • Customer Conversion Rate • Sales Per Promotional Investment • Sales Per Employee Hour • Overhead Percentage Of Sales • Average Inventory Turn • Operating Margin • Average Inventory Shrinkage • Return On Invested Capital • Sales Per Square Foot • Sales Per Working Capital Invested • Average Gross Margin Percentage Benchmarks Should Be Selected Based On Operational And Strategic Objectives Let’s Use A Generic Retail Store’s Financials To Examine The Impact Of Certain Benchmarks ABC Store Income Statement Category Result % of Sales Net Sales $600,000 100% COGS $348,000 58% Gross Profit $252,000 42% Marketing Expense $60,000 10% Real Estate Expense $48,000 8% Administration $120,000 20% Operating Profit $24,000 4% Now Let’s Examine How Benchmarking May Improve Effectiveness And Financial Performance Average Sale Per Square Foot Benchmarking Note: Assume Women’s Apparel Store of 1,500 sq ft Store Benchmark Variance $400 $550 ($150) Source: hdl company survey Areas To Assess •Merchandising •Sales Training Benchmark Varies Greatly By •Task Assignment and Management Store Size And Type – •Store Transaction Processes Benchmarks Are About YOUR •Product Assortment Business Type And Size •Pricing Strategy Potential Sales Growth: ($550-$400) X 1,500 = $225,000
  6. 6. Retail Conversion Rates Benchmarking Store Benchmark Variance 25% 30% (5%) Source: Areas To Assess •Sale Training •Labor Analysis and Management •Store Merchandising •Store Engagement Processes •Store Communications Processes •Multi-unit Management involvement •Employee Retention Processes Potential Sales Growth: [(.30/.25) -1] X $600,000 = $120,000 Average Gross Margin Benchmarking Store Benchmark Variance 42% 46% (4%) Source: hdl company survey Areas To Assess •Merchandise Planning Processes – Level Of Detail, Frequency, Methods, Etc. •Availability Of Buying Support, Domestic And International •Resources In Procurement Group/Function •Markdown Processes And Lifecycle Management For Various Product Types •Product Selection And Assortment Processes Potential Gross Profit Savings: (.46-.42) X $600,000 = $24,000 Average Inventory Turn Benchmarking Store Benchmark Variance 2.5 3.0 (.5) Source: Areas To Assess •Staffing – Buyers And Planners Based On SKU’s, Product Types, And Sales Volume •Merchandise Planning Processes •Availability Of Buying Support, Domestic And International •Analysis And Management Of Gross Margin •Markdown Processes And Lifecycle Management For Various Product Types •Product Selection And Assortment Processes Potential Sales Growth: [(.30/.25) -1] X $600,000 = $120,000 Potential Working Capital Savings: ($600,000/2.5)-($600,000/3.0) = $40,000
  7. 7. Marketing Expense As Percentage Of Sales Benchmarking Store Benchmark Variance 10% 7% (3%) Source: Areas To Assess •Measurement Of Advertising Effectiveness •Extent And Methods Of Leveraging The Internet Channel For Marketing •Involvement Of Merchandising And Operations In Marketing Processes •Allocation Of Resources To Various Advertising Media •Cycle Times And Number Of Iterations To Develop Creative Content Potential Profit Improvement: (.10 - .07) X $600,000 = $18,000 Operating Margin Benchmarking Store Benchmark Variance 4% 6% 2% Source: Areas To Assess •Employee Retention And Staff Turnover Issues •Tax Implications Of Owner’s Draw Vs Store Profit •Under Investment In Marketing And Promotional Activities •Under Utilization Of Cash For Reinvestment In Growth Strategies •Under Investment In CAPEX – Lack Depreciation Expense Potential Profit Improvement: (.06 - .04) X $600,000 = $12,000 Other Benchmark Considerations Benchmark Areas To Assess Sales Per Transaction Employee Training And Incentive Plans Sales Per Employee Hour Employee Training, Incentive Plans And Scheduling Average Inventory Shrinkage Security, Inventory Processes, Point Of Sale Reconciliation System, Shipping And Receiving Sales Per Promotional Investment Marketing Effectiveness, Promotional Tracking Systems, Marketing Strategy Overhead Percentage Of Sales Staff Capacity And Utilization, Real Estate Costs, Utilities, Unnecessary And Unproductive Services, Outsourcing Opportunities Return On Invested Capital Inventory Turn, Dated Inventory, Markdown Procedures, Receivables And Credit Policies Sales Per Working Capital Inventory And Receivables Policies, Sales Training, Invested Pricing Strategies, Marketing Effectiveness
  8. 8. Benefits Of Utilizing Benchmarking And Best Practices Raises The Level Of Potential Performance “If you know neither yourself nor your enemy, Sharing Of Best Practices you will succumb in every Understanding World-class Performance battle. In-depth If you know yourself but not Encourages And Stimulates Innovation the enemy, for every victory gained you will Improves Organizational Quality suffer a defeat. Exposes Employees To New Ideas If you know yourself and Broadens Organization’s Perspective your enemy, you need not fear of a hundred battles.” A Catalyst For Learning - Sun Tzu - Increase Employee Satisfaction Sources For Retail Benchmark Data The Retail Owners Institute Retailbenchmarks.Com* Retail Forward Intl Council Of Shopping Centers* Census.Gov The Aberdeen Group* Consulting White Papers Trade Show Seminars/Associations Webinars Colleagues Some Sources Are Free, Some Are Not*. However All the Information is Priceless For Your Business Benchmarking Provides Invaluable Insight Into Previously Unseen Performance Variances
  9. 9. Start Today - Conduct A Management Review Courtesy of: Berman 2009 CBCG - We’re Here If You Need Us Lynn Switanowski-Barrett is the founder and president of Creative Business Consulting Group, (CBCG) A Boston based retail consulting firm. CBCG partners with retailers and manufacturers to create and implement profit improving sales, marketing and inventory management strategies. CBCG helps retailers understand the business opportunities created by today’s changing consumer trends and helps retailers to harness the power of new media and marketing tools to connect with today’s wired consumers. Lynn’s 25 years retail career includes senior executive positions at fortune 500 apparel and footwear retailers before launching CBCG in 2004. Lynn speaks frequently at retail trade shows across North America and teaches retail marketing and branding at several colleges in the Boston area. Philadelphia Gift Show July 2010 Creative Business Consulting Group Follow Creative Business Consulting Group • We’re Always Talking Retail In One Of These Places: @RetailHelper Creative Business Consulting Group