October 25, 2006
Retailers Get Organized for the Holidays
Sharply reduced prices, free shipping, one-of-a-kind gifts, remodeled stores, self-serve technology and helpful employees are just some of the means retailers intend to use this holiday season to get consumers spending in their stores.
Patricia Pao, chief executive of the Pao Principle consultancy, also sees retailers tightly managing inventories to reduce markdowns and protect margins to the degree that is possible.
“It’s going to be a more organized Christmas,” she told The Dallas Morning News. “It’s going to be more orchestrated, and inventories are going to be managed better. You won’t see floor-to-ceiling perfume sets stacked against the wall.”
Gladys Lau, senior retail industry director at Oracle, said the use of pricing optimization software will produce substantial rewards for merchants this holiday season.
“Retailers have been collecting massive amounts of information, tracking where goods sold and for how much and when they sold,” she said. “Now their software tells them when they should mark it down if it hasn’t sold.
“Consumers are so smart today, the retailer has to be as smart as the consumer,” she added.
The approach retailers intend to take for the holiday season is already in evidence.
Wal-Mart has made announcements heralding price cuts on toys and consumer electronics, while continuing to play up other changes taking place in the company’s stores.
J.C. Penney is putting its “redbox” logo on items it recommends as gifts this holiday. All “redbox” items will be available for purchase in stores, online and by catalog.
Discussion Question: Which of the following factors – free shipping, price cuts, one-of-a-kind gifts, remodeled stores, price optimization software,
self-serve technology and helpful employees – do you think will be most valuable to the final bottom line performance of retailers this Christmas selling season?
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If we’re to choose just one thing to have the most impact on the bottom line this Christmas season, it has to be price optimization. Price optimization will be the difference for some retailers between Santa being generous in what he brings them, or getting a lump of coal.
Times have changed. Once upon a time, a delicious Jane Parker rum fruit cake was a gift welcomed by almost everyone.
Now it’s rare and expensively conceived tastes that decide what is important to give.
Since this is Macy’s first nationwide Christmas season, I am sure it will not pile high its perfume sets in front of its fragrance counters.
1983 was a great year for retailers. That wasn’t an election year. So with the aura of falling gasoline and fuel prices, perhaps the consumer will be in a more generous mood with their plastic. But stores will have to compete for their business. Giving away the store on Black Friday is not the best way to run a business. Selecting certain loss leaders to generate revenue streams within the rest of the store and providing excellent customer service are key strategies for retailers to a jolly holly yuletide selling season.
Ironically, I think the answer is that it depends on who you are. For Wal-Mart, it’s going to be a combination of price cutting and price optimization because that remains the primary competitive tactic influencing core consumer behavior. For Target it’s probably going to be a combination of price optimization, customer service, and unique items. Target has to be “in the ball park” on pricing, while continuing to deliver it’s competitive advantage in shopping experience and unique product. For others, the specific lever to success may be something very different.
There is no single answer to this question. Overall, price optimization is probably the single most important factor averaged out across the industry. Inherent in that statement is the assumption that price optimization involves manipulating pricing at the individual item level to maximize overall profit, which involves cutting prices on comparable commodities to meet competitive behavior and taking additional margin on unique items.
How do you price optimize a gift card?
If you had asked which of the choices would impact topline sales, the result might be different, but there’s only one item on the list that is singularly focused on the bottom line and that’s price optimization software.
During the holiday season, the battle for topline sales causes many retailers to be so aggressive that they end up paying for it when they report their numbers after the season.
Conversely, retailers that use price optimization software are focusing on the bottom line and may choose to forego topline sales in favor of ensuring bottom line profitability. Those retailers will post their best numbers after the season when they reveal their quarterly profit results.
Price optimization is important, but is not exclusive of all the other elements which a retailer must get right and consider in this ever increasingly complex and dynamic competitive retailing environment.
I still remember the advice that my first GMM, Doug Harris, gave me many years ago. He told me that the secret to retailing was very simple and provided me with the keys to becoming a successful buyer which was; “Don’t buy too many, don’t buy too few, just buy the pretty ones that sell.”
Retail has always been about balance, and buying the right items, pricing them competitively, managing the flow and in-stock of the inventory, ensuring its proper out of stock, dealing with competitor pricing, treating your customers right and providing them with a clean store and an exciting shopping environment have all been mutually Non-Exclusive requirements.
This hasn’t changed, what has changed and added even more complexity to the game is the increase in new forms of competition and shopping habits which make traditional approaches even more difficult.
Online shopping is garnering a greater share of the retail pie each year (a report by Goldman Sachs, Nielsen showed that online shoppers spent more than $30.1 billion in the weeks leading up to Christmas 2005), foot traffic in Wal-Mart is down, consumers willingness to pay full price for anything seasonal is very low.
A less predictable shopper with greater choices makes it difficult to take the chances that a retailer may have taken in years past in inventory investment (“stackin’ it high”). Decreased foot traffic and greater on line shopping decreases the amount of impulse and cross merchandise purchasing a consumer will make. Customers using their best poker faces can force retailers to panic and markdown their seasonal products earlier in the hope that they beat the competiton to the punch.
What will it take for a retailer to be succesfull this holiday season? Why it’s simple really, don’t buy too much, don’t buy too little, just buy the pretty stuff that sells!
It’s the item, the offering. The most valuable asset to the bottom line this year and every year is still good merchandise assortments, items the customers really want. The new Elmo doll was a sell out in September and will be hot through Christmas. Wal-Mart picked Electronics not just for the higher ticket that electronics brings, but also because it is a high demand category.
iPod anything is hot from Nike synchronized iPod running shoes to a drop in Bose speaker stand. Wide MP3 accessory assortments, unique accessory items, creatively combining accessories in-store and on promotion, offering free download cards; these will be the types of tools profitable retailers will use to get more than their fair share of Holiday sales. Some retailers really are just better merchants and merchandise for a profit as well as “operate” for a profit.
Of the list of choices that will have the greatest impact on retailers’ bottom line, I would have to choose “one-of-a-kind” gifts because it’s the only option that focuses on the most important issue for every retailer: Merchandise Content. Especially if you’re not a high-end specialty retailer, you need to ensure that your assortments are focused, giftable, unique, trend-right and bought with conviction.
Without compelling assortments in their stores, everything else on the list — markdown optimization software, free shipping, enhanced customer service — won’t drive the top line no matter how much it enhances productivity, merchandise presentation, store traffic, etc.
Improved allocations by store and new markdown optimization programs that allow for smarter pricing decisions before and after clearance markdowns are taken are steps forward but won’t represent a “magic bullet” vs. 2005 results if the customer doesn’t like the merchandise offering.
Price optimization software is a terrific tool, which needs to be combined with artful inventory plans. Translation: software can’t bail you out when your inventory is triple the demand with another 7 containers on the way. Moderate-priced apparel and many hard goods items require long lead times due to Asian sourcing. Four to six months is not usual. So the software can help, but it can’t handle everything. Human judgment is still critical. And since so many retailers use price optimization software, it’s no longer a competitive edge.
All the points mentioned play into a successful Holiday Season.
But, it has been reported that consumer focus and service will “prime” the shopper to spend more at these retailers. And Macy’s has put extra effort into its most loyal shoppers.
Promotion is a given, but focusing on exceptional service and support at each store will be the “silver bullet,” for a magical holiday season. Hmmmmmmmm
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If we’re to choose just one thing to have the most impact on the bottom line this Christmas season, it has to be price optimization. Price optimization will be the difference for some retailers between Santa being generous in what he brings them, or getting a lump of coal.
Times have changed. Once upon a time, a delicious Jane Parker rum fruit cake was a gift welcomed by almost everyone.
Now it’s rare and expensively conceived tastes that decide what is important to give.
Since this is Macy’s first nationwide Christmas season, I am sure it will not pile high its perfume sets in front of its fragrance counters.
1983 was a great year for retailers. That wasn’t an election year. So with the aura of falling gasoline and fuel prices, perhaps the consumer will be in a more generous mood with their plastic. But stores will have to compete for their business. Giving away the store on Black Friday is not the best way to run a business. Selecting certain loss leaders to generate revenue streams within the rest of the store and providing excellent customer service are key strategies for retailers to a jolly holly yuletide selling season.
Ironically, I think the answer is that it depends on who you are. For Wal-Mart, it’s going to be a combination of price cutting and price optimization because that remains the primary competitive tactic influencing core consumer behavior. For Target it’s probably going to be a combination of price optimization, customer service, and unique items. Target has to be “in the ball park” on pricing, while continuing to deliver it’s competitive advantage in shopping experience and unique product. For others, the specific lever to success may be something very different.
There is no single answer to this question. Overall, price optimization is probably the single most important factor averaged out across the industry. Inherent in that statement is the assumption that price optimization involves manipulating pricing at the individual item level to maximize overall profit, which involves cutting prices on comparable commodities to meet competitive behavior and taking additional margin on unique items.
How do you price optimize a gift card?
If you had asked which of the choices would impact topline sales, the result might be different, but there’s only one item on the list that is singularly focused on the bottom line and that’s price optimization software.
During the holiday season, the battle for topline sales causes many retailers to be so aggressive that they end up paying for it when they report their numbers after the season.
Conversely, retailers that use price optimization software are focusing on the bottom line and may choose to forego topline sales in favor of ensuring bottom line profitability. Those retailers will post their best numbers after the season when they reveal their quarterly profit results.
Price optimization is important, but is not exclusive of all the other elements which a retailer must get right and consider in this ever increasingly complex and dynamic competitive retailing environment.
I still remember the advice that my first GMM, Doug Harris, gave me many years ago. He told me that the secret to retailing was very simple and provided me with the keys to becoming a successful buyer which was; “Don’t buy too many, don’t buy too few, just buy the pretty ones that sell.”
Retail has always been about balance, and buying the right items, pricing them competitively, managing the flow and in-stock of the inventory, ensuring its proper out of stock, dealing with competitor pricing, treating your customers right and providing them with a clean store and an exciting shopping environment have all been mutually Non-Exclusive requirements.
This hasn’t changed, what has changed and added even more complexity to the game is the increase in new forms of competition and shopping habits which make traditional approaches even more difficult.
Online shopping is garnering a greater share of the retail pie each year (a report by Goldman Sachs, Nielsen showed that online shoppers spent more than $30.1 billion in the weeks leading up to Christmas 2005), foot traffic in Wal-Mart is down, consumers willingness to pay full price for anything seasonal is very low.
A less predictable shopper with greater choices makes it difficult to take the chances that a retailer may have taken in years past in inventory investment (“stackin’ it high”). Decreased foot traffic and greater on line shopping decreases the amount of impulse and cross merchandise purchasing a consumer will make. Customers using their best poker faces can force retailers to panic and markdown their seasonal products earlier in the hope that they beat the competiton to the punch.
What will it take for a retailer to be succesfull this holiday season? Why it’s simple really, don’t buy too much, don’t buy too little, just buy the pretty stuff that sells!
It’s the item, the offering. The most valuable asset to the bottom line this year and every year is still good merchandise assortments, items the customers really want. The new Elmo doll was a sell out in September and will be hot through Christmas. Wal-Mart picked Electronics not just for the higher ticket that electronics brings, but also because it is a high demand category.
iPod anything is hot from Nike synchronized iPod running shoes to a drop in Bose speaker stand. Wide MP3 accessory assortments, unique accessory items, creatively combining accessories in-store and on promotion, offering free download cards; these will be the types of tools profitable retailers will use to get more than their fair share of Holiday sales. Some retailers really are just better merchants and merchandise for a profit as well as “operate” for a profit.
Of the list of choices that will have the greatest impact on retailers’ bottom line, I would have to choose “one-of-a-kind” gifts because it’s the only option that focuses on the most important issue for every retailer: Merchandise Content. Especially if you’re not a high-end specialty retailer, you need to ensure that your assortments are focused, giftable, unique, trend-right and bought with conviction.
Without compelling assortments in their stores, everything else on the list — markdown optimization software, free shipping, enhanced customer service — won’t drive the top line no matter how much it enhances productivity, merchandise presentation, store traffic, etc.
Improved allocations by store and new markdown optimization programs that allow for smarter pricing decisions before and after clearance markdowns are taken are steps forward but won’t represent a “magic bullet” vs. 2005 results if the customer doesn’t like the merchandise offering.
Price optimization software is a terrific tool, which needs to be combined with artful inventory plans. Translation: software can’t bail you out when your inventory is triple the demand with another 7 containers on the way. Moderate-priced apparel and many hard goods items require long lead times due to Asian sourcing. Four to six months is not usual. So the software can help, but it can’t handle everything. Human judgment is still critical. And since so many retailers use price optimization software, it’s no longer a competitive edge.
All the points mentioned play into a successful Holiday Season.
But, it has been reported that consumer focus and service will “prime” the shopper to spend more at these retailers. And Macy’s has put extra effort into its most loyal shoppers.
Promotion is a given, but focusing on exceptional service and support at each store will be the “silver bullet,” for a magical holiday season. Hmmmmmmmm