san francisco gift show summer 2010 retail benchmark presentation

Creating Financial Success For Your Retail Business:

Understanding and Using Retail Benchmarks

August 1, 2010San Francisco International Gift Fair

What Is Benchmarking?

A Systematic And Continuous Process Of Searching, Learning, Adapting And Implementing The Best Practices From Within Your Own Organization, Or From Other Organizations, Towards Attaining Superior Performance

Emphasis On Market Share And Comparative Data On Sales And Operations

What Is A Benchmark?

• A Measured “Best-in-class” Achievement, Recognized As The Standard Of Excellence For A Particular Process

• A Reference Point Or A Standard Against Which Other Performance May Be Measured Against

• Examples May Include:� Rate Of Customer Complaint - 5%

� Employee Satisfaction Rate - 95%

� Information Retrieval Time - 5 Seconds

� Customer Response Time - 30 Seconds

� Gross Margin - 50%

� Annual Sales Per Square Foot - $500

Why Should a Retailer Understand And Utilize Benchmarking?Helps Retailers To Increase Performance

Also Helps To:

• Identify Potential Internal Weaknesses• Provide Guidance For Improvement Planning • Verify Strengths And How Further Exploiting Them

• Utilize Best Practices To Improve The Operation Of Your Organization

• Spur Innovation And The Development Of New Product And Merchandising Concepts

• Improve Cost Structures And Competitiveness

• Help Recognize Opportunities For Outsourcing And Strategic Alliances

Benchmarking Can Provide Important Information To Drive Accelerated Business Improvement

ObjectiveWithout

BenchmarkingWith Benchmarking

To Become More Adaptive

Evolutionary Change Understanding Of Competition Ideas From Proven Practices

Implement Industry Best Practices

Few Solutions, Frantic Catch Up Activity

Many Options, Superior Performance

Defining Customer Requirements

Based On History, Gut Feeling Or Perception

Market Reality, Objective Evaluation

Establishing Effective Goals & Objectives

Lacking External Focus, Reactive

Credible Unarguable, Proactive

Developing True Measures Of Productivity

Pursuing Projects, Strength/Weaknesses Not Understood

Solving Real Problems, Based On Industry Best Practices

Benchmarking Exists In A Number Of Different Forms, Each Offering A Differing Perspective And Usefulness

Industry General

• Typically High Level And Industry Broad

• Offers A Macro-economic Perspective• Normally Offers Only A General Perspective To Where And How Your

Business Compares To Benchmarked Firms

Industry Segment Specific

• Represents Data From “Like Firms” That Operate In The Same Business Environment

• Generally In The Same Manner As Your Firm• Offers Comparable Database And A Higher Level Of Credibility

Operating Metrics

• Very Specific, Typically Financial Line Item Detail • Offer “Eye Opening” Perspective When Significant Variances Are Discovered

Ensure You Obtain The Proper Benchmark Before Assessing Store Performance

Type Of Apparel Retailer Store Sq Ft Sales/Sq. Ft.

Women’s Boutique 1,500 - 3,000 $400 - $700

Men’s Boutique 2,000 - 8,000 $150 - $300

Shoes 1,200 - 2,500 $250 - $475

Closeout Department Store 12,000 - 30,000 $100 - $150

Upscale Department Store 120,000 - 180,000 $425 - $825

Drug Store 15,000 - 22,000 $125 - $215

Convenience Store 2,000 - 3,000 $325 - $650

Gift Shop 1000-3000 $200 - $900

Source: hdl company survey, ICSC

Make Sure You Obtain The Appropriate Statistic For Your Store Size and Type

Example: Sales Per Square Foot Can Vary Dramatically Within Retail Category

Retailers Should Be Continually Focused On Building Value By Seeking Out Improvements In Performance

“Selling More”

“Keeping More of Every Dollar Sold”

“Tying up Less Capital for Every Dollar

Sold”

“Growing Value-Creating

Formula”

Change in Business Valuation

Investment GrowthReturn On Investment

Costs/Margin Working CapitalSales Capital Expenditures

Benchmarks Enable Retailers To Examine Different Aspect Of Business Performance And Effectiveness

Sales Effectiveness

Is The Business Achieving Its Optimal Level Of Sales?

Merchandising Effectiveness

Is The Utilization Of Inventory, Product Mix And Merchandising Strategies Maximizing Gross Profit Potential?

Marketing Effectiveness

Are The Investments In Advertising And Promotions Generating An Appropriate Level Of Incremental Sales And Profits?

Management Effectiveness

Are Investments In Non-sales Generating Overhead Appropriate?

Capital Effectiveness

Are Working Capital And Assets Generating Market Comparable Returns?

Utilizing Benchmarks In Concert With Best Practices Enables Optimum Improvement OpportunitiesBest Practices Are:

• Outstanding Business Practices Which Have Been Identified As Contributing To Significant Improved Performances In Leading Companies Within An Industry

• Industry Publications, Organizations, Trade Shows, Webinars – Be A Continual Learner And Seek Ways To Apply To Your Business

Idea

• Join Or Form A Cop (Community Of Practice) - A Small Group Of People Who Comes Together To Explore Opportunities For Benchmarks And Best Practices Sharing On Common Interest Areas

Retail Business Strategy Informs The Development of Value Drivers And KPI’s Required For Benchmarking

Key Performance Indicators

Key Value Drivers

Strategy

External and Internal

Benchmarks

Specific Benchmarks Will Enable The Identification of Implications, Solutions And Potential Business Impact

Obtain Benchmarks

Identify Implications

Design Solutions

Desired Impact

Continuous

Business

Improvement

Improvement Cycle Should Repeat Itself Periodically

Various Internal And External Benchmarks Can Be Utilized To Measure Retail Performance

• Sales Per Transaction

• Customer Conversion Rate

• Sales Per Employee Hour

• Average Inventory Turn

• Average Inventory Shrinkage

• Sales Per Square Foot

• Average Gross Margin Percentage

• Sales Per Marketing Activities

• Sales Per Promotional Investment

• Overhead Percentage Of Sales

• Operating Margin

• Return On Invested Capital

• Sales Per Working Capital Invested

Key Measures:

Benchmarks Should Be Selected Based On Operational And Strategic Objectives

Let’s Use A Generic Retail Store’s Financials To Examine The Impact Of Certain Benchmarks

ABC Store Income Statement

Now Let’s Examine How Benchmarking May Improve Effectiveness And Financial Performance

Category Result % of Sales

Net Sales $600,000 100%

COGS $348,000 58%

Gross Profit $252,000 42%

Marketing Expense $60,000 10%

Real Estate Expense $48,000 8%

Administration $120,000 20%

Operating Profit $24,000 4%

Average Sale Per Square Foot Benchmarking

Potential Sales Growth: ($550-$400) X 1,500 = $225,000

Store Benchmark Variance

$400 $550 ($150)

•Merchandising•Sales Training•Task Assignment and Management •Store Transaction Processes •Product Assortment•Pricing Strategy

Source: hdl company survey

Note: Assume Women’s Apparel Store of 1,500 sq ft

Areas To Assess

Benchmark Varies Greatly By Store Size And Type –

Benchmarks Are About YOUR Business Type And Size

Retail Conversion Rates Benchmarking

Potential Sales Growth: [(.30/.25) -1] X $600,000 = $120,000


25% 30% (5%)

Areas To Assess

•Sale Training•Labor Analysis and Management

•Store Merchandising •Store Engagement Processes

•Store Communications Processes •Multi-unit Management involvement

•Employee Retention Processes

Source: retailtouchpoints.com

Average Gross Margin Benchmarking

Potential Gross Profit Savings: (.46-.42) X $600,000 = $24,000


42% 46% (4%)

Areas To Assess

•Merchandise Planning Processes – Level Of Detail, Frequency, Methods, Etc.

•Availability Of Buying Support, Domestic And International •Resources In Procurement Group/Function

•Markdown Processes And Lifecycle Management For Various Product Types

•Product Selection And Assortment Processes

Source: hdl company survey

Average Inventory Turn Benchmarking

Potential Sales Growth: [(.30/.25) -1] X $600,000 = $120,000Potential Working Capital Savings: ($600,000/2.5)-($600,000/3.0) = $40,000


2.5 3.0 (.5)

Areas To Assess

•Staffing – Buyers And Planners Based On SKU’s, Product Types, And Sales Volume

•Merchandise Planning Processes•Availability Of Buying Support, Domestic And International

•Analysis And Management Of Gross Margin •Markdown Processes And Lifecycle Management For Various

Product Types •Product Selection And Assortment Processes

Source: retailbenchmarks.com

Marketing Expense As Percentage Of Sales Benchmarking

Potential Profit Improvement: (.10 - .07) X $600,000 = $18,000


10% 7% (3%)

Areas To Assess

•Measurement Of Advertising Effectiveness •Extent And Methods Of Leveraging The Internet Channel For Marketing •Involvement Of Merchandising And Operations In Marketing

Processes •Allocation Of Resources To Various Advertising Media •Cycle Times And Number Of Iterations To Develop Creative Content


Operating Margin Benchmarking

Potential Profit Improvement: (.06 - .04) X $600,000 = $12,000


4% 6% 2%

Areas To Assess

•Employee Retention And Staff Turnover Issues•Tax Implications Of Owner’s Draw Vs Store Profit

•Under Investment In Marketing And Promotional Activities

•Under Utilization Of Cash For Reinvestment In Growth Strategies

•Under Investment In CAPEX – Lack Depreciation Expense


Other Benchmark Considerations

Benchmark Areas To Assess

Sales Per Transaction Employee Training And Incentive Plans

Sales Per Employee Hour Employee Training, Incentive Plans And Scheduling

Average Inventory Shrinkage Security, Inventory Processes, Point Of SaleReconciliation System, Shipping And Receiving

Sales Per Promotional Investment Marketing Effectiveness, Promotional Tracking Systems, Marketing Strategy

Overhead Percentage Of Sales Staff Capacity And Utilization, Real Estate Costs, Utilities, Unnecessary And Unproductive Services, Outsourcing Opportunities

Return On Invested Capital Inventory Turn, Dated Inventory, Markdown Procedures, Receivables And Credit Policies

Sales Per Working Capital Invested

Inventory And Receivables Policies, Sales Training, Pricing Strategies, Marketing Effectiveness

Benefits Of Utilizing Benchmarking And Best Practices

� Raises The Level Of Potential Performance

� Sharing Of Best Practices

� Understanding World-class Performance In-depth

� Encourages And Stimulates Innovation

� Improves Organizational Quality

� Exposes Employees To New Ideas

� Broadens Organization’s Perspective

� A Catalyst For Learning

� Increase Employee Satisfaction

“If you know neither yourself nor your enemy, you will succumb in every battle.

If you know yourself but not the enemy, for every victory gained you will suffer a defeat.

If you know yourself and your enemy, you need not fear of a hundred battles.”

- Sun Tzu -

Sources For Retail Benchmark Data

� The Retail Owners Institute

� Retailbenchmarks.Com*

� Retail Forward

� Intl Council Of Shopping Centers*

� SBA.gov

� Census.Gov

� The Aberdeen Group*

� Consulting White Papers

� Trade Show Seminars/Associations

� Webinars

� Colleagues

Some Sources Are Free, Some Are Not*. However All the Information is Priceless For Your Business

Benchmarking Provides Invaluable Insight Into Previously Unseen Performance Variances

Start Today - Conduct A Management Review

Courtesy of: Berman 2009

Creative Business Consulting Group www.cbc-group.netPhiladelphia Gift Show July 2010

CBCG - We’re Here If You Need Us

Lynn Switanowski-Barrett is the founder and president of Creative Business Consulting Group, (CBCG) A Boston

based retail consulting firm. CBCG partners with retailers and manufacturers to create and implement profit improving sales,

marketing and inventory management strategies.

CBCG helps retailers understand the business opportunities created by today’s changing consumer trends and helps retailers

to harness the power of new media and marketing tools to connect with today’s wired consumers.

Lynn’s 25 years retail career includes senior executive positions

at fortune 500 apparel and footwear retailers before launching CBCG in 2004. Lynn speaks frequently at retail trade shows

across North America and teaches retail marketing and branding at several colleges in the Boston area.

Creative Business Consulting Group www.cbc-group.net

Follow Creative Business Consulting Group

•We’re Always Talking Retail In One Of These Places:

@RetailHelper

http://cbcgretailreport.blogspot.com

www.linkedin.com/in/lynnswitanowski

http://www.facebook.com/CBCGroup

san francisco gift show summer 2010 retail benchmark presentation

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