There is no doubt when you work in retail that sales are key.
Every morning retail smartphones and emails are alive with daily and weekly updates. Every week there is tremendous focus on the previous week’s sales. When I was in retail we would review our performance relative to the same week last year, the budget and the plan. As a supplier you need to respect the retailer’s emphasis on sales. You also need to understand how that obsession can have an impact on decision-making in the business. A bad week in sales can lead to immediate changes in advertising retails or item selection.
Sales momentum is critical in retail.If employees working at a retailer are engaged, their mood will change with sales results. Great sales results that deliver numbers above expectations really energize employees. One great aspect of the retail food industry is that you can determine the effectiveness of your plan and your execution very quickly: the cash register will tell you. That’s where the shopper votes.
The top line (sales) drives results. In retail, we used to say.“Volume hides a lot of sins.” Each retailer has its own way of describing that; you have to understand that sales are the top describing that; you have to understand that sales are the top priority for your retail customers
In retail, there are many different metrics to use for analyzing sales results. Retailers review:
-Sales per square foot;
-Sales per customer;
-Sales per labour hour
These numbers are reviewed for each department and each store. They get scrutinized every week, every month or period, and every year. Yes, there is an obsession about sales within retailers.
Fixed costs make or break profit
Many expenses in retail are fixed, but if you can achieve volume, these expenses decrease rapidly as a percentage of sales. The store lights are on and people are working no matter if they do $350,000 or $550,000 per week in a location.
There are, however, many controllable expenses in stores. Labour is the largest controllable expense that retailers have. There are a minimum number of hours required to run a store.
When sales start to grow, there are many opportunities to leverage labour and other expenses. Retailers invest considerable resources in finding opportunities to improve their numbers. When there are more and more opportunities to buy food, food retailers have to be more focused than ever on maintaining and growing sales.
The retail landscape has turned upside down
One major challenge facing traditional food retailers is that there are many more, and different, retailers trying to sell food. We once had well defined channels for distribution where grocery stores sold food, pharmacies prescribed medication and sold health care products, and department stores sold clothes and household goods. Now they’re all trying to be all things to all people. Food stores have pharmacies and clothes, drug stores have sizeable percentages of floor space dedicated to food, and some mass merchants have more linear feet of food than do some food stores.
Food is a necessary and popular item and it does drive traffic.
Traditional food retailers are trying to prevent losing volume to many different stores. The food stores are not innocent in this blurring of channels – they were eager to dive into discounted prescriptions and some even devote considerable space to clothing. No doubt this offers the consumer many one stop shopping options, but it also creates a much more diverse marketplace where the battle to deliver a weekly sales number is more challenging than ever.
The overall retail landscape has evolved and segments within food retailing have gone through significant change as well. The traditional supermarket has evolved into three segments:
-Discount food stores;
-Conventional (or traditional) food stores;
-Large format (or super stores)
The three segments each have a defined target market, however, there’s considerable cross shopping. Retailers work diligently every week to put together a program that will entice the consumers to spend their food dollars in their stores. Discount stores occupy the smallest physical space of the three segments and rely on high volume and low cost to deliver a bottom line. These stores must be priced competitively and most follow an everyday low price program. They price check the competition aggressively and have deeply discounted ads on a select number of items. The discount segment has experienced considerable growth in recent years with the impact of the recession and the changing consumer, driving shoppers into these stores.
CONVENTIONAL (OR TRADITIONAL) STORES
The physical size of traditional stores is usually between 30,000 sq. ft. and 80,000 sq. ft. and they offer a full array of departments and more service than the other two segments.
Pricing is higher with a weekly ad to create excitement, drive traffic and provide a template to support themes and events. Traditional stores have been under more pressure for sales as consumers have shifted away to discount stores to save money. Consumers have also responded to the aggressive real estate expansion program executed by the large stores, so the traditional store is caught in the middle, losing to the other formats.
LARGE FORMAT (OR SUPER STORES)
Large stores, which are more than 80,000 sq. ft., have been growing with competitive pricing, one stop shopping and a significant growth in square footage. Walmart, Costco, Real Canadian Superstore, Save On Foods and now Target occupy the large format space. These stores started to open in Canada in the 1980s. They were built as destination stores with the philosophy that consumers would travel up to an hour to shop. This has now changed and you will find them in smaller markets and across the street from each other. They drive considerable traffic and the key for these stores to be successful is delivering value to the customer.
RETAILERS OBSESSION WITH SALES
Your retail customers work very hard to develop a sales culture. This is done for a number of reasons, which are both internal and external. Internally, employees must be making decisions that will result in consumers making purchases. Externally, there is considerable pressure to deliver positive results for shareholders.
The majority of large retailers are publicly traded companies.
Sales information is available each quarter and analysts working with the financial institutions put a significant emphasis on the sales numbers reported. Almost everything done by the retailers is determined by sales. This is the first number budgeted and all others are defined as a percentage of sales.
When you see a retailer report financial results, sales are always one of the first metrics to be listed. If sales are not first, they are probably not very encouraging. Retailers report two numbers: absolute and same store (or comparable) sales. Both numbers are important, however, the analysts who assess performance of retailers put a lot of focus on same store sales numbers.
The reason that same store sales are so important is that they measure performance in stores that have been open for more than a year. These are the core sales and there is less influence from new retail space through real estate programs or from renovations. Absolute sales are the total sales number for the business.
You should be aware of sales results for your retail customers. These are available in quarterly updates they release which are posted on their websites.