What type of retailer are you?

There are really only two types of retail business model. Fast moving consumer goods (FMCG) and Fashion.

FMCG businesses are those that sell the same product, over and over again - Supermarkets, Pharmacies, Hardware stores, etc.

The drivers of FMCG businesses are familiarity and price - the customer knows what these businesses stock and roughly what they should pay for it.

Fashion businesses are almost the exact opposite - they sell new products.

The drivers of Fashion businesses are an element of surprise and great service and the customer has no idea what they sell or how much to pay but know that they can’t live without it.

It is true that most retailers, have elements of both in their business. Every retailer has new products just as every retailer has basic stock but too many retailers fail to define what type of retailer they are - there are fashion businesses that behave like FMCG and FMCG businesses who think they are Fashion retailers.

I have recently completed some work for a previously successful jewellery chain who were experiencing a decline in sales and profit.

On closer inspection of their inventory, I found that nearly 80% of their product lines were more than five years old - product bought and price promoted, over and over again because, as one buyer put it “that’s what sells”

To make matters worse this business did not have an item which was newer than six months old and while there were systems in place to manage aged stock, nobody seemed all that bothered that there was nothing new or fresh in their business.

When asked about this, the same buyer said, “the people in the stores have no idea what’s new and what’s not” These statements explain quite a few problems the business was facing - their customers (and staff) were uninspired by a ‘same old, same old’ product range and this was being compounded by a buyer who clearly had never worked in a fashion business (or on a shop floor)

This business relied on ever bigger discounts to move their stock (leading to lower margins) and there were no plans in place to attract new or returning customers by refreshing their range.

The buyers were hamstrung and spent most of their time and OTB, buying and promoting stock which should have been either automatically re-ordered or deleted.

To solve this, we developed a new benchmark which took into account the product’s profitability over a given period i.e. when the profit dropped below a certain level it was time to think about introducing a replacement.

Simple stuff but ‘groundbreaking’ for some businesses.

One new product every month (not just a variation of an old product) and the deletion of two old products became one of the merchandise team’s KPIs.

I have also spent time with a pharmacy group which had the opposite problem.

Pharmacy is a lot like grocery except that, due to a lesser buying power, the large manufacturers tend to ride roughshod over the buyers.

Pharmacy, like many other sectors, receives co-operative funding for promotions and many range, display and promote new products according to the size of these cheques rather than the product’s performance.

In this particular pharmacy group, the buyers were inundated with new products which competed with old products for space on their planograms leading to best sellers being frequently out of stock while new products sat there, not selling despite the promises of the manufacturers.

We initiated a promotional program that focussed on the best sellers from the biggest categories - using them as, not quite loss leaders (but close) and the print and TV was backed up in stores with designated gondola ends.

This meant that the stores had to order enough stock of their best selling, promoted products (rather than an untested new product) to fill a gondola end for the first week of the promotion and despite some early underestimates this promotional program was a resounding success.

Again, it’s simple stuff but wresting back control of the group’s promotional program resulted in enormous increases in sales, profitability, basket size and value - not to mention that the stores had sufficient stock of what they needed and didn’t have to send their customers elsewhere.

So what type of retailer are you?