After a few years of unprecedented growth and spending, retailers entered 2023 with a renewed focus on profitability hoping to convert revenue increases to bottom line profit. As we head into the rest of this year, the majority of retail executives are concerned about maintaining or improving profit margins in what continues to be turbulent times. Rising costs as a result of inflation are putting tremendous pressure on profit, coupled with on-going supply chain challenges and a very unpredictable consumer.
But, regardless of extenuating circumstances, profitability is the key to the long-term health of any retail business. While improving revenue is often the primary focus of most retail businesses, sales alone do not guarantee profitability. Profitability is a multi-dimensional challenge that involves managing inventory, optimizing channels, and having an efficient operating structure.
INVENTORY MANAGEMENTThe right item, in the right place, at the right price, at the right time. That is inventory management.
The best place to start is with an accurate sales plan, a clear view of your target customer and good data. Your data should inform your customer’s product preferences, priorities and demands across styles, skus, sizes, and price sensitivities. Your data will help to guide pricing, assortment planning, stock replenishment, and forecasting.
When you determine how much you can sell, you can plan your inventory according to what you believe your customers want, and at a stock to sales ratio that improves your productivity.
Additionally, retailers can use inventory management techniques such as dropshipping, cross-docking, and vendor-managed inventory to minimize inventory and improve efficiency.
CHANNEL OPTIMIZATION Over the past few years, many retailers have expanded their distribution channels which has created a significant degree of complexity. Brick-and-mortar stores, e-commerce platforms, marketplace and wholesale points of sale all perform differently. While sales, inventory ownership, featured product and customized messages may differ, it is essential to have a unified and cohesive customer experience across all channels.
Optimizing channels begins with determining sales plan, product assortment and inventory allocation by channel using data. Understanding, anticipating and accurately planning for customer demand by channel will drive top line sales and sell through, increase customer satisfaction, and ultimately improve profitability.
OPERATIONAL EFFICIENCY It’s all about less Excel spreadsheets, and more automated processes. Streamlining business operations and automating manual processes is one of the many benefits of using technologies. You will have more accurate dashboards, quicker and better decisions, less costly mistakes, and perhaps less headcount. Controlling and reducing costs while improving business processes is the quickest way to impact your profit.
BOTTOM LINE Improving profitability in today’s market is a challenge, but it is not impossible. Whether you focus on inventory management, improving your channel productivity or creating more efficiency within your organization, there is profit to be found if you start with your target customer. All of your answers will be revealed when you filter your alternatives and decisions through the lens of delivering an extraordinary customer experience.