How to increase net worth for retail franchises

Have you ever heard of the sayings ‘tougher times call for tougher measures’ or ‘when times get tough’?

Building the net worth of your franchise business is really the end game for any franchise owner, and how you drive the value of your investment is the perspective we encourage all franchise owners to take.

There are plenty of commentators in today’s market who talk through the ‘what to do’ in times of softer consumer confidence, however, at the Retail Doctor Group we are equally focused on the ‘how to do it’.

Our philosophy is not to just cut into the business at random, rather to understand where the lean muscle and the fat are within your business model.

We know that the inter-relationships of a ‘fit’ retail business are tightly inter-connected and the effect of change in one component, such as supply chain efficiency, can have a dramatic impact on areas such as merchandise assortment, stock turn, depth of range and market positioning.

The response to our market conditions is always the hallmark of a successful retailer, including:

• Their continued focus on their specific point of difference within the marketplace (not spreading too thin and being all things to all people).
• Growing profitable sales with a more engaged customer through a great in-store experience coupled with relevant and compelling loyalty programs.
• Ensuring that their buying, inventory forecasts, open-to-buys and ratios all reflect increased inventory productivity.
• Cash rather than credit are king in these times and managing cashflow is even more important than ever.

Really understanding the productivity and drivers of their business in more detail than ever before, increasing investment in the right areas (building muscle fitness) and reducing in the less productive areas (trimming fat) are essential to success in any economic cycle and more particularly in the current cycles.

Our Fit for Business diagnostics has been very successful in diagnosing the true productivity of many businesses and this will reveal the fat vs muscle ratio with the business.

Even the most successful business will have stored profits that the diagnosis process will identify require unlocking.

The following examples are among many diagnosed, where the unlocking of store profits (and increasing sales) could be achieved with exactly the same number of transactions as in the prior period.

• Up to 55% of available hours in staffing were taken up with non-selling activities. That is staff facing the ‘back door’ as distinct from the customer engrossed with administration duties or moving and touching the product at every opportunity. Little wonder that staff were not achieving 100% of sales targets.

• Staff coverage and actual transaction counts/flow only correlated on average 70% of the time, resulting in times during the day when customers were under-serviced or staff were over-invested.

• On average, up to 45% of staff surveyed did not have an individual sales target and up to 65% surveyed had no training measurement.

• An average 15% of customer sales were not fulfilled due to ‘out-of-stocks’.

• An average 20% did not have an ‘open-to-buy’ buying forecast.

• Merchandise management software was not integrated with a point of sale system in over 25% of cases.

• Aged inventory was, on average, in store 30-40% longer than the target dates nominated by management.

None of these examples (and there are many more) have anything to do with the external economy. Rather they are examples of fitness factors that are achievable within the benefits of distinguishing between the fat and the muscle within your business.

Each month we produce a retail barometer newsletter, where we share the latest retail news, trends and advice to help retailers get fit for business.

Brian Walker is the founder and CEO of Australia’s leading retail consulting company, Retail Doctor Group. Brian specialises in the development and implementation of insight-driven retail and franchise strategies.