Hypermarket Trends

Ever wonder why Shoemart after dominating the retail landscaped in shopping malls development mushrooming everywhere, dominating the Supermarket and Department Stores categories has once again creatively come up with a the hypermarket concept.  Although the US and European markets have long been pulled towards convenience and enjoyable grocery flair with their own hypermarkets, The Philippines somewhat is just getting used to the idea of a merger of basic grocery necessities, foods, drinks, beauty bars and shampoos, toiletries, apparel, household appliances, fashionable dresses and clothes wear, furnitures, dairy and non-dairy goods under one roof.

Shopwise for one, the pioneer in the hypermarket concept is also making every Filipino consumers fancy the freshest produce products and the bakery concept into their own fold of hypermarkets, value priced and ease of shopping conveniences.

Unlike the traditional supermarket and grocery concepts, these hypermarkets are gigantic, complimenting the idea of people always on the go, time savings and money-savers as well with the growing offerings of price-cut value for all age categories.

Recently Nielsen Retailer Service came up with a report on the shopper trends in Asia and Hypermarket has gained significant ground across all asian markets.

Hypermarkets – The shoppers’ choice for staples and non-food

According to Nielsen Retail Service, hypermarkets continued to gain share in most countries in the region. In urban Taiwan, Korea, Malaysia and Thailand, between 75 and 95 percent of main household shoppers use hypermarkets on a monthly basis, with more than 60 percent of these regular shoppers using this format as their main store.

Thailand stands out as the country that has embraced this format to the greatest extent, with four out of five
households spending most in hypermarkets.Shoppers are most likely to use hypermarkets as a destination
channel for either grocery staples, such as rice and edible oil, or mainstream non-food categories such as laundry detergents, toilet paper and shampoo. The general merchandise offer is also catching shoppers’ attention, with 70 percent of shoppers in Thailand, Malaysia, Korea and China claiming to have bought
clothes from Hypermarkets in the last year, and more than 50 percent also buying electronics.

The one area the stores continue to struggle with is fresh food. Wet markets continue to dominate in this category and most shoppers who buy fresh food from hypermarkets use them as a secondary channel rather than as a destination.

In Korea, hypermarkets are now the dominant trade sector with approaching 60 percent of urban shoppers claiming to spend most in this channel and over 90 percent using them on a regular basis. Korea experienced a significant increase in trade concentration during 2006 with the exit of both Wal-mart and

Carrefour and the sale of their stores to leading local chains. The top five chains now account for over 30 percent of sales, still a relatively fragmented market compared to others in the region, but in the last five years the level of concentration has increased nearly threefold from just 2 percent in 2002.

Hypermarkets also gained share, as well as penetration, in Indonesia. Over one third of urban Indonesian shoppers in key cities now use this format on a monthly basis. The number of hypermarkets has doubled in the last three years and there are now over 00 stores. But the biggest story in Indonesia, in terms of changing channel use, has been the growth of the mini-market. In 2000 mini-markets share of trade was less than four percent, in 2006 they gained another two share points to account for 2 percent of packaged grocery sales.

In that time period store numbers have increased from just over 2,000 to more than 7,300. Two retail chains, Indomart and Alfamart, have driven this growth and account for nearly 50 percent of store numbers. In urban Indonesia, nearly 20 percent of shoppers use these stores as their main grocery channel because of their convenient location and competitive prices.

In Summary
The Philippines, the growth of hypermarkets will sprout everywhere and this will play well with the consumers, more retail players would mean better price value offers will be made for the consumers, fresh goods, value for money, wide assortments and promotionals that will surely make this concept an appealing trend if not the new lifestyle of every Filipino household in terms of their grocery list shopping destination.

Devoting my Life's Passion

"I have never known such a disciplined people. From the moment they wake, they devote themselves to the perfection of whatever they pursue" 

A phrase from the movie The Last Samurai, where Tom Cruise narrated his observation of his captors.Strucked by this observation, I realize that indeed life is about perfecting a craft, a skill, a talent, a mission, or to whatever we each so desire to accomplish in our lifetime.

Everyday is a brand new opportunity for each one of us to make a significant difference by continually and persistently honing our abilities and excel towards good to great by daily devoting ourselves to the perfection of whatever we pursue.

I have always applied the same discipline in my line of work, I studied Management Information System back in college but I have always foreseen myself wanting to pursue a career in retailing, be it for supermarket, drugstore, shopping mall boutiques, department store, hypermarket, convenience stores.

I constantly have to learn new merchandising skills, I have to even at times learn proper visual merchandising display, be on the look out for new trends, be sensitive to consumer needs and wants, even their complaints.  I never came to a point of getting myself bored with my work. 

When the time came for internet commerce to slowly revolutionize the way people spend their money, I have to learn it, I even have to propose to my boss that its the right direction to follow but as traditional retailers, they wouldn't take the necessary steps to take and follow the lead of internet commerce.

When I moved on to another company that gives so much importance and focus on customer interaction online, I was quite happy and indeed turn-over of sales more than quadrupled due to customer's interactive relationship with us, thus developing that brand awareness for our company as well as our merchandise.
There will always be room for learning if we apply ourselves to be willing listeners, and keen observers of the changing times.  I personally am happy that I grew up in a generation of upgrades, from analog to digital, from brick and mortar to internet commerce.

I know that be it in education, retailing, merchandising, sales, food, fashion, movies, and many other fascinating part of our lives, we will always have something to improve on.  So we don't stay idle even when we think we already know, there's so much more to still learn from others.

Brand Rescue of Clorox

Some blue-chip companies have adopted a longer view of brand management and are starting to show positive results. For example, Clorox, a leading consumer-packaged-goods firm, is ahead of the curve in its use of long-term metrics to steward its brand. Until the second quarter of 2005, the Clorox bleach product line was in a seemingly endless cycle of discounting. Almost once a month, the price of a 96-ounce bottle of regular Clorox bleach was reduced to $0.99 at retail—even cheaper than most bottled waters. The company had also reduced its advertising spending. From a short-term perspective, the promotions appeared to be quite profitable. Yet consumers learned to lie in wait for these deals, which increased short-term sales but decreased baseline sales.

In the midst of this, Stephen Garry, director of advanced analytics at Clorox, introduced long-term metrics to measure brand performance. The top chart in the exhibit “How Clorox Rescued Its Brand” depicts quarterly baseline sales for the brand and the projected incremental lift arising from promotions. Both measures are expressed as a percentage change from the corresponding quarter of the previous year to control for seasonal fluctuations in sales and to protect the company’s data.

How Clorox Rescued Its Brand

Garry found that before the third quarter of 2005, baseline sales were low (not depicted in the chart) and decreasing. Lift over baseline—which reflects price sensitivity—was extremely high (not depicted in the chart) and increasing. These numbers indicated weakness in the brand from the perspective of both sales and margins. In response, Garry initiated an effort to reverse this trend by reducing discounting and increasing television advertising. The changes, implemented in July 2005, are depicted in the middle chart of the exhibit.

As a result of the policy change, baseline sales increased dramatically and lift over baseline decreased. Consumers were no longer buying from promotion to promotion but were instead purchasing more volume at full price. These changes had a positive long-term effect on the company’s revenues and profits by increasing the brand’s quantity and price premiums.

As shown in the bottom chart of the exhibit, revenue (which was low before the policy change) eventually began to turn around as a result of the reduction in discounting. Clorox further indicated to us that profits, which continued to fall in the short term (the third and fourth quarters of 2005), rebounded sharply in the first and second quarters of 2006.

Note the implication for the analyst who typically focuses on short-term metrics such as quarterly revenue. In the third quarter of 2005, the analyst might have downgraded the brand as a result of revenue and profit decreases. Yet these short-term decreases reflect the time it takes for consumers to acclimate to the price changes and respond to the advertising. Clorox, with the foresight and temerity to monitor the attendant long-term changes in brand health, persevered with its strategy. The ensuing quarters yielded higher revenues and substantially increased gross profits. Without long-term brand-health measures, the analyst may have come to a misleading conclusion about the value of the brand or Clorox may not have realized the fruition of its strategy. Armed with long-term metrics, firms and analysts can assume a longer-term perspective on the brand, leading to improved profitability.

Brand management today is like driving a car by looking only a few feet ahead. The drivers can change direction rapidly, but they’re not necessarily on a path that will take them where they want to go. In the face of an increasingly fragmented media and powerful retailers, brand managers cannot afford to be steering their brands in the wrong direction. Mounting evidence suggests that a short-term orientation erodes a brand’s ability to compete in the marketplace. Accordingly, managers are well advised to refocus their attention on the basic principles that once made their brands ascendant.

Consumers Price sensitivity towards Brands

The numbers tell a sobering story about the state of branded goods: From 2003 to 2005, global private-label market share grew a staggering 13%. Furthermore, price premiums have eroded, and margins are following suit. Consumers are 50% more price sensitive than they were 25 years ago. In recent surveys of consumer-goods managers, seven out of ten cited pricing pressure and shoppers’ declining loyalty as their primary concerns.

Brands are on the wane. For the many consumer-goods companies struggling against this trend, it’s tempting to blame the big-box discount retailers. Plenty of anecdotes support their point of view. Recall what happened to Vlasic, for 50 years a beloved brand in America’s kitchen cupboards, when it started discounting its pickles by offering them in gallon-size jars in the late 1990s. Wal-Mart began selling the product for an unheard-of $2.99—a price so low that Wal-Mart soon made up 30% of Vlasic’s business. The supercheap gallon jar cannibalized Vlasic’s other channels and shrank its margins by 25%. When Vlasic asked for pricing relief, Wal-Mart responded by refusing an immediate price increase and reviewing its commitments to the line. By 2001, Vlasic had filed for bankruptcy.

Wal-Mart and other powerful retailers have undoubtedly weakened some brands, but a number of consumer-product companies have done a better job than Vlasic at managing both their relationships with retailers and their brands. For example, when Foot Locker cut Nike orders by about $200 million to protest the terms Nike had placed on prices and selection, Nike cut its allocation of shoes to Foot Locker by $400 million. Consumers, frustrated because they couldn’t find the shoes they wanted, stopped shopping at Foot Locker. Sales at a competitor, Finish Line, increased. In the end, Foot Locker acceded to Nike’s terms.

At the core of the differences in how Vlasic and Nike managed their brands is a crucial disparity in strategic perspective. Vlasic used a short-term sales strategy, focusing on a single, large channel partner and discounting its product to attract consumers. In addition, the company reduced advertising by 40% between 1995 and 1998. Nike, on the other hand, positioned itself for the long term. It maintained strong relationships with a variety of retailers and invested in brand equity, allocating $1.2 billion annually to its advertising budget. By setting its sights on a distant horizon, Nike continued to own its customers—and its brand—while Vlasic ceded both to the channel.

Companies routinely overinvest in promotions and underinvest in advertising, product development, and new forms of distribution. As a result, powerhouse brands have been weakened, often beyond recovery.

Our research into the role of marketing strategy in brand performance indicates that companies are paying too much attention to short-term data and not enough to the long-term health of their brands. They routinely overinvest in price promotions and underinvest in advertising, new-product development, and new forms of distribution. As a result of these shortsighted approaches, powerhouse brands have been weakened, often beyond recovery. It’s time for changes in how companies measure brand performance, how they communicate about their brands to the markets, and how they oversee brand managers. Those changes won’t happen without a major shift in thinking at the senior-management level. Corporate managers have the ability to make these sweeping changes. Do they have the will?

The Genesis of the Short-Term View

One wonders how manufacturers became so myopic about their brands. We suggest three factors: an abundance of real-time sales data that make short-term promotional effects more apparent, thus pushing manufacturers to overdiscount; a corresponding dearth of usable information to help assess the effect of long-term investments in brand equity, new products, and distribution; and the short tenure of brand managers. We’ll discuss each in turn.

Data are proliferating.

Before the 1980s, brand managers had to wait up to two months to get sales numbers. Matching weekly discounts to changes in sales was a difficult and error-prone task. That all changed with the advent of store scanners, which gave managers real-time sales data. These figures made it possible to attribute a spike in sales to a price promotion. 

Although scanner data showed brand managers the clear link between discounting and sales, the numbers didn’t necessarily tell them much about whether a given promotion was profitable. For that assessment, they needed to compare sales at the discounted price with those that probably would have occurred without the promotion. To help brand managers predict the level of sales in the absence of a discount, and thus to assess the immediate profitability of promotions, baseline sales models were developed—in part by Leonard Lodish. (It’s important to note that, contrary to the belief of many brand managers, baseline sales are estimates—albeit very good ones—not measures of actual sales. Baseline sales are estimated by extrapolating from periods when there are no price reductions or other kinds of promotions.) This new metric further highlighted the short-term effects of trade promotions.

The profusion of data has had major consequences for the allocation of marketing dollars. According to various sources, from 1978 to 2001 trade promotion spending increased from 33% to 61% of firms’ marketing budgets. This growth occurred largely at the expense of advertising, whose effects play out over a longer time frame and are thus more difficult to measure. Advertising spending fell from 40% to 24% of marketing expenditures during this period. That level has held fairly constant in recent years.

The reallocation of spending away from long-term brand building and toward temporary price reductions was predicated on a short-term mind-set. Promotions yield an incontrovertible boost in sales, known as lift over baseline. This effect, however, is generally short-lived. To understand how promotions affect brands in the long run, consider some consequences of short-term sales approaches.

• Changes in consumer behavior. Shoppers aren’t naive; regular sales promotions encourage them to wait for the next sale rather than purchase a product at full price. As more people make purchasing decisions exclusively on price (a behavior that results in decreased sales when the product is not discounted), baseline sales eventually decrease and lift over baseline increases. From a short-term perspective, this lift makes promotions look highly profitable, so managers push for more discounts. Eventually, most of a product is sold at a discount, and profit margins decrease. The average brand manager, who believes that baselines do not change with pricing policy, is left to wonder what went wrong.      

Shoppers aren’t naive; regular sales promotions encourage them to wait for the next sale rather than purchase a product at full price.

In addition, customers often stockpile a product if they think the price is particularly good. In the short term, this behavior may give the appearance of an increase in sales; over the longer term, however, customers simply delay purchases as they work through their inventory. In other words, stockpiling can amplify the immediate effect of a promotion without increasing overall sales.

• Diluted brand equity. By focusing consumers’ attention on extrinsic brand cues such as price instead of on intrinsic cues such as quality, promotions make brands appear less differentiated. Consumers, over time, become more price sensitive, and the product gradually becomes commoditized. Even stores can be threatened with commodity status. A factor cited in Kmart’s bankruptcy was the retailer’s reliance on discounts to attract consumers to the store. When it tried to curtail price promotions, sales plummeted. By communicating to shoppers that low prices were its main draw, Kmart had given customers no reason to develop any loyalty.

• Competitive response. When one firm increases its discounts, others usually follow suit. As a result, individual promotions increase but overall sales do not, further lowering everyone’s margins.

Together, these factors can substantially diminish the usefulness of sales promotions. In a study of 24 brands in Europe using data from 2002 to 2005, Information Resources, Inc. (IRI) found that the total impact of discounts is only 80% of their short-term effect (in other words, the effects measured over the long term turn out to be 20% less positive than they first appear). In contrast, the long-term effect of advertising can be 60% greater than its short-term impact. Research on 71 brands by a consumer-packaged-goods marketer in the United States resulted in a similar conclusion: Price sensitivity measured weekly is seven times higher than it is when the same data are assessed quarterly. This difference can be ascribed, in part, to the fact that weekly data recognize increases in purchases but ignore subsequent competitive price reactions and changes in consumer behavior. Nonetheless, the increased availability of short-term data dramatically affects perceptions of the value of promotions. As promotional measurement becomes even more granular (with daily and hourly data for sales available on demand), this short-term orientation will probably be reinforced.

Long-term effects are harder to measure.

While immediate increases in sales arising from discounts are striking, the effects of discounts and of other components in the marketing mix—such as advertising, new products, and distribution—can be understood only over the long term. However, because long-term effects are more difficult to measure than short-term ones, few companies pay much attention to them. Research to help managers take a longer view is increasingly available. Studies by Lodish and colleagues found that advertising has a small short-term effect on sales compared with the effect of a price promotion—but a TV advertising campaign that does generate significant sales increases during the first year will continue to do so for two more years, even if the ads are no longer being aired. The revenue arising from the first year of advertising approximately doubles over the subsequent two-year period. Equally important, if a TV campaign does not have a significant impact during the first year, it will have no long-term impact (and roughly half of all TV ads generate no lift in sales, according to some recent research).

One might conclude that TV advertising is difficult to justify on a short-term basis. We disagree with this view for two reasons. First, advertisers who test their ads in the market can isolate the campaigns that will increase revenues over the long term, since advertisements that are successful in the short run also have a positive long-term effect. Second, even campaigns that don’t do much to boost sales can increase margins by differentiating brands and thus allowing companies to raise prices. Indeed, Victoria’s Secret has conducted a number of regional and local TV advertising tests in which consumers in some regions were exposed to the ads and others were not. According to Jill Beraud, chief marketing officer of Limited Brands, the parent company of Victoria’s Secret, the brand’s TV ads do not generally increase short-term sales enough to justify the cost. However, Victoria’s Secret has linked increases in TV advertising to its ability to charge higher prices over the long term. The investment in TV advertising helps build the overall strength of the brand and decrease customers’ price sensitivity.

Companies have paid even less attention to the long-term effects of distribution and new products than they have to the effects of advertising. By coupling recent statistical advances with five years of data on 25 packaged-goods categories, Carl Mela and colleagues examined the long-term effects of distribution (the number and kind of stores carrying the product) and of product-line length (the number of items) and variety (the extent to which items are distinct). Results indicate that increases in the length and variety of a product line play a major role in boosting a brand’s baseline sales. Moreover, increased product-line variety and distribution in leading retailers reduce consumers’ sensitivity to price. Together, these results suggest that increasing variety and high-quality distribution raises sales and prices in the long run. Also of note, discounts had a deleterious long-term effect on brand performance.

An example of a company that has considered the effects of distribution is Lacoste, known for tennis shirts adorned with a tiny alligator. When the French company started selling the shirts in the United States in the 1950s, they became a fashion rage. General Mills acquired the brand in 1969, and it continued to sell well. However, in the mid-1980s, General Mills lowered the price on the shirts and broadened distribution to include discount outlets instead of adding high-end stores. The short-term effect was predictable: Sales increased. Yet the brand went from elite stores’ racks to clearance bins and lost its cachet. Lacoste repurchased the brand in 1992. The company limited distribution to higher-quality clothing retailers, advertised the brand through celebrities, and raised prices. A change in senior leadership in 2002 precipitated an even stronger brand focus. Since that time, sales have jumped 800%. However, in the initial years after Lacoste repurchased the brand, the company’s marketing efforts had little immediate effect on revenues. Had the company assumed a short-term sales perspective, it may not have been able to reinvigorate the brand.

Despite the growing evidence that marketing strategies—other than price promotions—yield positive long-term returns, companies continue to manage their brands with a short-term perspective. This orientation is exacerbated by Wall Street analysts who focus on quarterly figures to value firms and advise clients. Lauren Lieberman, Lehman Brothers’ equity analyst for cosmetics, household products, and personal care products, gave us a Wall Street point of view: “We analyze quarterly revenue and profit performance because it’s the best gauge we’ve got. But what we really value is sustainable top-line growth because we feel it is indicative of higher returns to shareholders over time.”

Of course this habit of looking chiefly at quarterly performance communicates itself to the companies being watched. Managers we interviewed at a major packaged-goods firm said that distribution in high-end stores and product innovation play the greatest role in increasing sales in the long term—but they focus their marketing programs and research efforts on discounting and advertising. When asked about the emphasis on discounts, they said they are judged on quarterly sales because investors focus on those numbers, and that the link between discounts and the current quarter’s sales is transparent. Thus, short-term numbers drive out those that tell the fuller story, leading managers to manage brands with the data they have, not the data they need.

Brand managers have short tenures.

The use of short-term sales data as a yardstick for brand performance can interact in unfortunate ways with the tenure of a brand manager—which is typically quite brief, often less than a year. Any brand manager who takes a long-term perspective—investing in advertising or new-product development—is likely to benefit the performance of subsequent managers, not her own.

In sum, the increasing availability of more thinly sliced short-term sales data has led to a greater emphasis on short-term marketing productivity, to the detriment of the long-run health of brands. Scanner data have been available for decades now, so it should be easier, not harder, to take a long-term view of brands. Unfortunately, most companies discard these data, unaware of how they can be used to track a brand not just over quarters but over many years.

A Long-View Dashboard

In the short term, discounts lift sales over baseline levels. But baselines and lifts are not immutable: They change in response to marketing strategy. Those changes signal a long-term shift in brand performance. Higher baseline sales mean that consumers are buying more of a product at full price. Think of this as a quantity premium. Whereas the baseline measure reflects only the volume sold when a product is not discounted, the lift-over-baseline measure represents the difference between discounted and nondiscounted sales. Smaller lifts reflect greater customer loyalty because loyals tend to buy regardless of the discount status. Brands with loyal customers face less pressure to reduce their prices and therefore enjoy a price premium. Together, quantity and price premiums reflect a brand’s long-term health. If both increase, demand and margins will be higher—along with brand equity and profits. If consumers pay less of a premium for the brand and baseline demand is decreasing, then the brand is headed in the wrong direction—and the firm has a problem.

A C-suite manager can monitor how a brand is doing in the long term by watching the following dashboard of measures each quarter:

• Baseline sales. Recall that this is an estimate of sales at a nondiscounted price. This measure reflects a brand’s quantity premium.

• The changes in baseline sales over months, quarters, and years and the statistical significance of those changes.

• The estimated response to regular prices and price promotions. An increased response to promotions reflects a decrease in the price premium a brand can command.

• The changes in response to regular and discounted prices over months, quarters, and years and the statistical significance of those changes.

Given the relatively short tenure of brand managers and the significant reallocation of resources that changes in long-term marketing strategy entail, someone higher up in the firm must track these measures. Such measures can also be useful tools for communicating the benefits of long-term marketing investments to a firm’s analysts.

To see what insights the dashboard can yield, consider the example of a large consumer-packaged-goods firm that, in conjunction with IRI, tracked the performance of one of its beverages from 1994 to 1999. The analysis revealed a 3% decline in baseline sales—an indication that shoppers were increasingly buying the beverage only when it was on sale—and a 14% increase in price sensitivity over that period. The overall brand decline was not obvious from the short-term sales data because the firm had increased discounts, which had led to a 7% growth in sales during the period. The damage to the brand became apparent when the company tried to raise prices in 1999. Consumers’ resistance to paying full price cost the brand more than $5 million in revenues. This debacle prompted a review of the brand’s strategy: Management discovered an 8% increase in promotion spending and a 7% decrease in advertising budgets.

How long-term metrics can redress short-term myopia.

We believe that the dashboard approach can improve brand performance over the long term in three ways.

First, this view prevents an exclusive focus on short-term data. If firms supplement sales data with data for quantity and price premiums, they will have a more complete sense of how various marketing programs affect their brands. Specifically, managers can establish whether price promotions have damaging long-term effects on brand equity and can therefore make more strategic decisions about marketing spending. Moreover, Wall Street analysts can use data on price premiums to get a better sense of a company’s profitability.

Second, brand managers’ performance can be judged on a combination of quarterly sales and quantity and price premiums. The temptation to discount a strong brand will be reduced, because damage to the brand’s long-term health will become more apparent. This will encourage managers not only to take a long-term view of performance but also to expend some effort determining which factors contribute to a brand’s strength. In addition, plots of dashboard metrics over time can serve as early warning systems to alert brand managers to problems.

Finally—and most broadly—long-term metrics inform a company’s marketing decisions. Consider, for example, the launch of a new product. When Kraft introduced DiGiorno Rising Crust Pizza, thereby creating a high-quality tier in the frozen pizza category, the company anticipated that the new product would cannibalize Tombstone, a mid-tier Kraft pizza. A recent study using long-term metrics shows, however, that the launch of DiGiorno had a consequence that Kraft did not anticipate: The new product did not just steal sales from Tombstone but caused its price premium—and that of all mid-tier pizza brands—to drop sharply. Apparently, DiGiorno made the mid-tier brands seem more ordinary to consumers; as a result, Tombstone was less able to withstand discounting from other pizzas like it. Ultimately, the introduction of DiGiorno was highly profitable for Kraft, but the company, unaware of the effect on Tombstone’s price premium, may have overstated the profitability of the launch. One can easily imagine that in other situations, a company armed with such metrics might have concluded that a launch would be unprofitable.

Data and methodology.

A company doesn’t truly have a long-term orientation unless it holds on to its data for longer periods and carefully analyzes the numbers.

We are astonished by the paucity of longitudinal data collected by the firms we visit. It is hard to see how companies can attain any insights into brand building with just 52 weeks of data, yet many firms have only that. Even major data suppliers such as IRI and ACNielsen discard data after five years—at the same time that they’re building more capacity and processing power to collect hour-by-hour measures. Hour-level data can undoubtedly be useful for monitoring stock-outs. However, it is difficult to imagine that local stock-outs affect market capitalization as much as brand equity, which often takes many years to build. Interbrand calculates the market value of the Coca-Cola brand to be $67 billion. This value developed over decades. It would be fascinating to study the evolution of Coke’s marketing mix—but in all likelihood it would be impossible to do so, because the data have probably vanished.

It is hard to see how companies can attain any insights into brand building with just 52 weeks of data, yet many firms have only that.

A detailed look at methods for analyzing long-term marketing results is beyond the scope of this article. The baseline sales and price sensitivity measures we propose for the dashboard are relatively easy and available from many data suppliers. Ideally, firms should collect and retain these measures over a long period—five years or more. Other analyses are more difficult. To assess the long-term effect of marketing strategy on brand performance, one would need to statistically link marketing policy over years or quarters to price and quantity premiums. This approach allows managers to gauge simultaneously the long-term effects of marketing campaigns on price premiums and the short-term effects of a given week’s discounts on that week’s sales.

CONTENTMENT

“We make ourselves rich by making our wants few.”

Having started my life in the retail industry, few have I seen people getting by without the necessary wanting to covet more and more. 

As a retail practitioner, knowing this about the behavior of the consumers gives utmost advantage on how we can entice people to keep buying and shopping for more.  In the end, our company will make substantial sales and profit to make us grow and expand our market reach.

On a personal note, I am really a person with few wants and needs, I am quite content with accomplishing my work, having made both my boss, superiors, peers and customers happy.

Learning this virtue for contentment is sometimes a hard-to do for most people and they are even  asking me how come, I being in an industry seeing the insatiable covetousness of people, be it for the company wanting to sell more, or for the people who buys and consume, I am never taken into the dark side of what most would call "covetousness" or "greed".

For me its a personal choice and perspective, we can only eat, drink, wear, drive so much.  Being able to share is the greatest fulfillment one can ever have.  So I guess I always view my work as mere gesture of giving to what the buying public wants, making my boss happy and making it easier for my sales staff to sell.

Measuring Retail Inventory Productivity

When I'm meeting for the first time with a potential client I occasionally tell the story of the best year I ever had as a buyer. It was a year I ran a 2% decrease. Don't get me wrong, I ran plenty of increases over the years, but that was the year I did my best work. I was buying Boys Teens woven Shirts, and boy, was it a knit shirt year! It was one of those "duck for cover" times, and my 2% decrease could have easily been a 10% or 15% drop instead. If only I'd been the knit shirt buyer!

It's easy to measure retail success on sales performance alone. It is the top line after all, the number that every merchant looks at first on Monday mornings. And it's just as easy to get into the trap of thinking that as long as sales are running ahead that everything else will follow along. Most of the time, profitability and cash flow will follow directly from sales increase, but certainly not always. And what happens when sales are off?

For almost every small retailer, inventory is the prime generator of revenue, profits and cash flow. Inventory typically makes up 70% to 80% of a small retailer's financial assets. So it only follows that sales, profitability and cash flow are directly linked to a small retailer's ability to manage their inventory productively.

The key to any merchant's success is to turn their inventory into cash, at the best possible markup, as quickly as they can, then buy more inventory and turn that into cash as quickly as they can, and so on and so forth. Now, that may be stating the obvious, but sometimes stating the obvious helps strips things back to their essentials.

Carrying unneeded inventory can decimate profitability and cash flow in a hurry. Not only does excess inventory tie up a lot of cash, but there are day-in and day-out costs associated with that inventory as well. From the expense of financing that inventory, to the costs of markdowns due to age and obsolescence, to the incremental payroll costs of moving it around, packing it up and putting it away to unpacking it and putting it back out, moving it from one spot to another, to the hidden costs of not being able to merchandise more productive inventory in its place, it all adds up, and hits the bottom line each month, each quarter, each year.

Retail Inventory productivity at its simplest can be defined as the amount of sales and gross profit dollars an inventory investment generates over a given period of time, usually a year. And the most basic measures of inventory productivity are inventory turnover and gross margin return on investment (GMROI).

Retail Inventory Turnover

Inventory turnover answers the most basic of questions; how many times was I able to turn my inventory into cash, buy more, and turn that into cash? It's not enough to know sales volume or inventory levels, it's critical to relate sales to inventory investment. A sales volume of Php100,000,000 a year on an average inventory of Php 50,000,000 is one thing, but on an average inventory of Php 20,000,000 it's quite another! It's the difference between turning your inventory over twice and turning it over five times.

The formula for calculating inventory turnover is pretty straight forward:

Sales (at retail value)Average Inventory Value (at retail value)

Alternatively, if your system only carries inventory value at cost, you can calculate inventory turnover this way:

Cost of Goods Sold
Average Inventory Value (at cost)

Retail Gross Margin Return on Investment (GMROI)

Gross margin return on investment answers the question: How many gross margin dollars did my inventory investment generate to pay for all of my other business expenses, such as payroll, rent, utilities, insurance, and so on?

Gross Margin Dollars
Average Inventory Value (at cost)

Or, stated as a percentage:

Gross Margin %Average Inventory Value (at cost)

A couple of technical points regarding these formulas:

• Both inventory turnover and GMROI are measures of the productivity of on-hand inventory, so the sales made from non on-hand inventory, such as special orders, needs to be excluded from the calculation.

• Both inventory turnover and GMROI is stated as an annual turnover. However, the period being measured does not necessarily have to be a 12 month period. In certain situations, particularly for seasonal items, inventory turnover and GMROI may be measured for a period of a few months, with the result being "annualized" for comparison purposes.

• Average inventory at cost is usually calculated by averaging the ending inventories for the prior 13 months. This represents the beginning and ending inventory values for the prior 12 months.

• Inventory turn and GMROI are dynamic metrics, as sales and inventory levels fluctuate. While they are frequently calculated annually, to fully utilize them as dynamic merchandising tools it is necessary to measure them quarterly or even monthly, on a rolling basis.

And a few additional thoughts on inventory turnover and GMROI:

• There is no magic bullet targets as to what your inventory turnover or GMROI should be. Every business is unique. While there may be industry ranges for both inventory turnover and GMROI, every small retailer is unique in their customer bases, merchandise assortments, and vendor structures. The key is to measure your productivity so you know where you are, then strive to improve that productivity.

• Once you've measured your productivity to establish a baseline, and developed strategies for improving that productivity, you must remain focused on implementing and executing those strategies. Invariably, small retailers who don't remain focused on improving their inventory productivity usually find their productivity actually backsliding. There's no such thing as standing still. If you don't know that you're moving forward, you're most likely going backwards.

• It's not just about reducing inventory, it's also about generating more sales with less inventory. Again, when small retailers focus on improving inventory productivity, they frequently focus on refining assortments and reducing inventories. But a funny thing usually happens in the process. They focus on where their sales and gross margin dollars are really coming from, they make sure they have the right merchandise, at the right prices, in the right places, at the right time, in the right quantities, and their sales increase!!

And a postscript. So, why was the year I ran a 2% decrease my best year ever? First of all, I saw it coming. It was pretty obvious in shopping the market before the season began that it just wasn't going to be a woven shirt year. Secondly, I had the benefit of a management that wasn't focused solely on the top line, they were focused on the bottom line as well. While they would have preferred that I ran an increase, they were more concerned about my department being profitable, and hitting my GMROI target.

So what did I do? Well, with two strikes against you, it doesn't make a lot of sense to swing for the fences. I bought very little up front, tested a number of different items in small quantities, but took few risks. I kept my assortments basic, to appeal to the widest range of customers, knowing that the fashion-forward crowd were headed straight for the knits anyways. I kept my inventories low, and avoided devastating markdowns.

And my GMROI, that most basic measure of retail profitability? My best ever.

Tips to Minimize Markdowns

As surely as January follows December (and July follows June), clearance season follows each and every peak selling season. And, just as surely, many independent retailers look at their sales floors and see far too much inventory left over that has to be cleared out. On the one hand, they know that with deep enough markdowns they’ll be able to move most of it through, but on the other they’d rather be transitioning their customers into new, fresh merchandise that could be sold at full retails and full margins.

The essential point to remember is that clearance markdowns are the result of earlier decisions made to bring in more inventory during the season than could be sold at full retails. Minimize those mistakes and you will minimize your markdowns.

Here are tips to help you minimize your markdowns: 

1. Plan your sales. Invariably when I start working with a client that’s struggling with markdowns they are also not in the habit of planning their sales. Whether the planning process is rather sophisticated or pretty basic is less important than the fact that there is a process in place designed to come up with a realistic forecast. Still, a good plan looks at every department and every month, and projects both dollar sales and unit sales. Knowing what you plan to sell, and establishing those benchmarks, is critical to making good, informed decisions about what and how much to buy, both before the season starts and during the season. 
2. Flow your inventory. Everything you buy carries the dual risks that the merchandise might not be the right merchandise and the quantities might not be the right quantities. You can minimize that risk by committing to and shipping inventory as close to the anticipated time of sale as possible. You minimize the risk by flowing your inventory continually throughout the season to support your sales plan. Let your inventory levels drive your merchandise presentations rather than the other way around. Maintaining lean inventories and flowing your inventory also allows you to respond quickly to sales trends and keeps your assortments fresh and current, which encourages your customers to visit more frequently and to buy when they first see something they want. 
3. Maintain liquidity. The other way that you can reduce the risks of carrying inventory is to keep some of your planned dollars in your back pocket. Planning your sales isn’t a license to go out and spend it all up front. How you execute your plan is as important as the plan itself. If you only commit as many of your dollars as you have to before the season starts, for only as much inventory as it takes to kick off the season, you’ll have more liquidity during the season to respond to what your customers are doing. Maintaining liquidity gives you the maximum flexibility to invest those dollars where you really need them, when you really need them. 
4. Avoid the last buy. All too often when you look at a clearance rack you realize that much of what is left over came from that last shipment of the season. At the time it seemed to make sense. You were concerned that you might not be able to make that last sale if you didn’t make that last buy. The problem is that those sales you were chasing almost always turn out not to be profitable, due to the left over inventory that’s now sitting in clearance, deeply discounted. What you need to keep in mind is that if you don’t chase that last sale by making that last buy, you’ll be left with more cash in your pocket going into clearance season, rather than more clearance inventory.
5. Give the dogs a head start. The simple fact is that a sale made at 30% off is more profitable than a sale made at 50% off. And, if something’s a dog, if it’s lagging behind the sale of other merchandise, it will still lag if you wait to mark it down with everything else. It’s far better to give it a head start, before everything else needs to be marked down, when you also have more customers in your store than later during clearance season. Mark dogs down as soon as they present themselves. It won’t take as deep a discount in-season to move them through as it will if you wait until clearance season. 
6. Test before you leap. Every great merchant is always on the lookout for exciting new lines, programs and items. It’s those things that drive sales increases. But being a great merchant is also about assessing risk and maintaining a strong batting average. Testing new things before you commit significant dollars to a more significant investment allows you to minimize your risk and keep your batting average high. Testing first also enables you to try a greater number of things than if you place bigger bets more narrowly up front. 

Markdowns are the result of decisions made earlier in the season to bring in inventory that ultimately couldn’t be sold at full retails. These decisions end up having a profound impact on the cash flow of the business. They can leave you feeling cash poor and having to deal with back payables and debt. Minimizing markdowns is an essential element of assuring long-term sustainability for any independent retailer. Follow these six tips and watch the impact on your cash flow!