Retail

Retail

Opinions expressed on this blog reflect the writer’s views and not the position of the Capgemini Group

Is Black Friday just another retail ‘black hole’, or should that be ‘Black November’?

Wait a minute. Another email? This one is from a supermarket. How did they get my email address? The headline– Black Friday offers. Oh my - it’s the third one I’ve received today, and it’s not even 8am.

Once upon a time, the real big savings for customers came in the New Year sale. In recent years this shifted to Boxing Day, to the point where it became the biggest annual turnover day in retail– now we have Black Friday.

Granted, this isn’t new news - but new to 2016 is that Black Friday has become Black November as retailers transform a one-day event into a 7-21 day promotion fest! Does this mean another retail ‘black hole’ is being created to make the retail landscape even trickier to navigate?

Margin diluting?

For now, we’ll put to one side a discussion about the email targeting habits of retailers I alluded to earlier, and instead concentrate on what this means for the retail bottom line. Last year my colleague Tracy Venza wrote an article regarding actions retailers could take to protect fulfillment during Black Friday. By ‘leaping on the bandwagon’ are retailers getting too much of a good thing? What is the impact on their profits of an ever changing trading pattern in what for most is their golden quarter? Given the latest IMRG Capgemini eRetail Sales Index has retail sales online at their highest growth rate since Black Friday 2014, do retailers really need a substitute for margin this time of year?

Before going head-in, retailers should consider a few things:

  • Infrastructure & operational costs – do retailers understand the capacity they need in their end-to-end supply chain to deliver the volumes expected from Black Friday? What is the cost impact of ensuring volumes arrive on time from suppliers, the additional short-term resource is there in the distribution network, the extra trucks are there to deliver larger volumes to stores, and the extra capacity is there to deliver parcels direct to customers? Learnings from last year have been included in the planning?
  • Merchandise costs – do retailers know how profitable their planned promotions will be? Have they analysed the full margin impact of their chosen promotions using data from previous experience? Do they understand the impact on the profitability of their full price (yes – retailers do still generate full price sales this time of year)? What impact will it have on seasonal product sell-through?
  • Customer loyalty cost – what is the cost of ‘getting on the bandwagon’ to customer loyalty? Will running promotions put some customers off? Will customers get ‘promotion fatigue’? Will you be setup to react quickly enough if competitors steal your thunder? Would customers buy anyway without looking for a discount, and therefore is there a real possibility of pure margin giveaway?

Running profitable promotions

Retailers are often running so fast, they’re not able to take a step back before setting the wheels in motion. Often however, it isn’t because retailers do not want to – it is often that they are unable to. Yet, spending time considering three key factors could help retailers to run more profitable and successful promotions:

1. Understand the products to promote – sounds simple; however, it is crucial to have the right process in place to review the proposed width of offers being presenting to customers holistically. This will help ensure the right presentation of the holistic offer to customers, and can match growth ambitions. How many times have we heard the phrase ‘customer is king’, and ‘customer centricity’, however, do not faithfully take heed?

2. Plan the right level and length of discounting – many retailers are great at collecting data; but key is having robust [even if simple] analysis in place to help inform decisions regarding duration of discount and the level of discount to be used. Lessons from the past can inform future decisions, but also reduces the risk of losing profit unnecessarily.

3. Assess and understand the wider business impact – ensure whatever plans are in place take into consideration the wider business impact associated with supporting a successful event. A simple process to include all key departments, from marketing to logistics, will help drive a single view, a better decision making process and best visibility of potential impact. Nobody wants to over-promise and under-deliver, and when things go wrong, better to have everyone already working together, limit ‘no surprises’ and balance commitments across the business.

Let’s ensure retail has a happier Christmas this year!

Ensuring a few key measures are in place before the Black Friday onslaught could help retailers better manage their profitability, and indeed any other promotional event. For many, particularly in the run up to Christmas, this is the most profitable time of the retail calendar (and for some the only opportunity to get back in to the black – no pun intended) – by not doing so could see retailers risking more of a ‘black hole’ in their balance sheets. We’ve lost too many high street names in recent times, here’s a more profitable Christmas and a happier New Year.

About the author

Lee Pettman
Lee Pettman
Lee is a Senior retail consultant with experience in merchandising and buying in various non-food sectors. Having spent time working in the retail industry for 10 years, he now delivers a wide range of projects for clients across the retail sector.

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