The principles of good retailing

The principles of good retailing

On the heels of a sluggish Christmas shopping season, Australian retailers continue to hope for an end to economy-wary shopping.

  • min read


The principles of good retailing

On the heels of a sluggish Christmas shopping season, Australian retailers continue to hope for an end to economy-wary shopping. Some companies are doing a better job than others in the challenge of winning uneasy consumers.

Consider Woolworths, which has held up relatively well in the downturn, reporting sales growth of 7.9 per cent in the last quarter of fiscal 2009 and 5.8 per cent in the first quarter of fiscal 2010. Like winning retailers around the world, Woolworths doesn't get distracted by tough times—it continues to strengthen its core business and core offerings, getting 

The company excels in four areas that separate winners from losers in an uncertain economy: keeping costs in line, finding opportunities in growing customer segments, maintaining a flexible fast-response organisation and nurturing a culture that pulls it through tough times. Our research and work with clients has found that amid economic uncertainty, retailers that rise above the pack have learned the following key lessons in those four critical areas.   

Take out costs before the need arises
By maintaining a disciplined approach to costs in good times, companies are better positioned to deal with economic storms when they appear. Woolworths early focus on costs has allowed the company to invest in their customers without sacrificing margins, which were at 7 per cent and 6.5 per cent for the first and second half of fiscal 2009.

Another company that has benefitted from pre-emptive cost cutting is handbag and leather goods retailer OrotonGroup. Three years ago OrotonGroup came face-to-face with the high cost of a business that had grown too complex. Trimming back on its product line and unprofitable locations helped the 72-year-old company get its costs in order so that when the downturn hit, it was able to keep its focus on customers—not on struggling to get budgets under control. OrotonGroup saw sales growth of 10.5 per cent on margins of 67.2 per cent in fiscal 2009, and continued with its plans to open 13 new stores-pretty impressive in a downturn.

Stay tuned to customers
As overall market growth slows, retailers must find pockets of growth by identifying and retaining the most attractive shoppers. That means segmenting shoppers into different groups and prioritising them based on customers' value and the ability to win the segment. Woolworths has gained share of basket in the tough economy by investing to improve its customer loyalty program—and to mine the shopping data that it delivers.

Acting on such data, it is doing a brisk business in "special-occasion" categories like Mexican and Asian foods, an area that has grown in popularity as consumers eat out less frequently. The company also uses its data to broaden its private-label offerings. But it is taking a cautious approach by promoting private-label products that attract repeat customers, not categories or products that smack of discounting.

Create flexible organisations
Economic uncertainty breeds fickle consumers. Staying ahead of the game requires empowering employees both at headquarters and at the frontlines to quickly respond to fast-breaking changes in consumer behavior. Employees need to be given accountability for key decisions and the tools required for making them. At Rebel Group, Australia's leading sporting good retailer, store managers are essentially autonomous: they have clear profit-and loss accountability, with control over local merchandising mix and cost management.

If their stores perform well, they share in the profits. Rebel Support Office plays a supporting role, providing management and front-line store teams with the necessary tools to make timely decisions based on key operating metrics. The Support Office also serves as a nerve center, quickly sharing information relayed back from the stores with the entire organisation, helping Rebel stay ahead of competitors. The approach is working, according to CEO John Joyce. While he is reluctant to give precise figures, he says sales are on plan and that profits are ahead of last year. 

Inspire employee and customer loyalty
A winning culture is the heart and soul of any retailer that can consistently outperform the competition. Culture motivates employees to do the right thing, not just the easy thing, and always with customers in mind. The importance of culture was validated by a Bain & Company worldwide survey of 1430 top executives conducted as the global downturn intensified in January 2009. Among the respondents, 80 per cent said culture is as important as strategy for business success. Yet our research indicates that fewer than 10 per cent of companies succeed in building vibrant, distinctive cultures.

Moreover, there is abundant evidence that a company's success is directly linked to a loyal, motivated workforce: our research indicates that loyalty leaders achieve 120 per cent more growth on average than competitors, while at the same time their costs are 15 per cent lower. Woolworths CEO Michael Luscombe is the first to agree that a culture that fosters employee loyalty will help companies weather any economic storm.

"During the Queensland floods last year we had a Petrol Site manager whose home was half-flooded. She got picked up from home in a boat, dropped off at the local hospital and then walked along railway tracks to get to her store on time and keep it open five hours a day," he says. "Given how strong our culture is, I don't worry about growth. It will take care of itself." 

Emma Gray and Jayne Hrdlicka are Bain & Company partners in Sydney.


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