WAYS TO MAKE A DIFFERENCE This leaflet highlights areas where retailers are finding ways to make a difference increasing growth and profitability in the face of intensifying competition and more discerning customers. 1 2 3 4 5 6 7 8 9 10 Raise net margins through strategic sourcing Boost short-term revenues category-by-category Convert planning systems investments into profits Maximise returns from own-label Drive brands for mutual benefit Increase space productivity through store clustering Target on-shelf availability to cure multiple sins Build loyalty amongst high-value customers Adopt factory-gate pricing for both efficiency and effectiveness Prioritise global expansion 11 Focus on core skills and capabilities Contents Volume Concentration Best Price Evaluation STRATEGIC SOURCING Product Specification Improvement Joint Process Improvement Global Sourcing Relationship Restructuring Sourcing Groups Supply Market Capability Business Impact NON-CRITICALLEVERAGE - - + NURTURESTRATEGIC + WAVE 1 WAVE 2 WAVE 3 M K O Q P N IJ H G S T F E C D A B LowHigh Ease of Implementation Savings opportunity L M 1 Strategic Sourcing STRATEGIC SOURCING APPROACH SELECTIONOPPORTUNITY PRIORITISATION PROCUREMENT PORTFOLIO POSITIONINGSOURCING GROUPS 1 A “one-size-fits-all“ approach to dealing with your suppliers is unlikely to get the best out of them, or create competitive advantage for you. Driven by the customer, each product/market segment requires different relationships with each supplier: Price-focused, or multi-dimensional criteria for supplier selection, e.g., product quality and innovation Responsive or just cost-efficient supply-chains Measures and incentives tailored to the supplier role Strategic suppliers need encouragement to invest in innovation for longer-term growth. A low-cost strategy may be more appropriate for commodity suppliers. Strategic sourcing explores both avenues of improvement (whether efficiency or effectiveness-related). Retailer margin improvements from 3% to 5% for food categories, from 4% to 7% for general merchandise, and more for clothing and fashion categories (including lower markdowns) are possible. Provided the relationship is structured appropriately, these benefits are not at the expense of quality of service or responsiveness. RAISE net MARGINS through strategic sourcing 10 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 31 35 12 14 19 20 10 14 16 18 4 6 13 14 8 11 13 10 12 15 18 20 25 29 12 14 15 16 18 20 25 Opportunity Gap Opportunity Gap Opportunity Gap CompetitorsBACDEFClient 10 15 20 25 30 35 40/Unit 5 0 1.0 2 01.0 2 Casual Shirts Formal Trousers Above AverageBelow Average Improve Sales continuously refine SPO is applicable to both food and non-food retailers. The financial benefit of SPO can be net-profit improvements from 2% to 4% for food categories, and 3% to 6% for home and fashion categories, in addition to higher revenue growth for both parties. Market type (Rural town, Satellite town, etc.) Local competition Store location in shopping centre Wealth profile (Acorn ABCD) by store location Age Profile by store location In-store refurbishment programmes Store relocation programmes Variation in fashion attitude by store Variation in target age group Variation in price points Physical Store Variables STORES STORE CLUSTERS Customer Variables Customer Purchasing Behaviour Internal Store Variables External Store Variables Clustering 6 THE KEY TO SUCCESSFUL CLUSTERING IS TO RAPIDLY IDENTIFY THE TWO OR THREE KEY VARIABLES WHICH DIFFERENTIATE STORE PERFORMANCE 6 INCREASE space productivity through store clustering The benefits of tailoring the catalogue and other marketing variables to match variations in local customer and competitive profile are intuitively obvious. Yet, many retailers have been disappointed with their attempts at store clustering, having become mired in complexity. The art and science of successful clustering lies in identifying two or three key variables which differentiate store performance and using them to create distinct store groupings, around which concrete actions can be taken: Refining the existing product allocation process with pragmatic clustering ensures that the right product is merchandised in the right store, thus satisfying unfulfilled demand Redesigning in-store layouts to match the local customer profile emphasises the appropriate product for that cluster Tailoring local promotions and window-line activity ensures that spend on these activities is optimised, whilst attracting new customers The creation of distinctive clusters requires sophisticated statistical analysis, yet success depends on its simplicity. It is important to balance analytical insights with the qualitative input of store managers, marketing and merchandisers. Benefits in the region of 4% to 6% increase in sales and profit are possible. 7 Non-adherence to critical paths (promotions, new produ