12.07.11 – Business Review Europe: Are the retail survivors just buying better?
Kiran Mazumdar from INVERTO explains why some retailers are doing well at the time of the demise of the UK high street.
There is no doubt that the UK high street is in deep trouble. While the supermarkets and online retailers continue to make gains in a sector pressured by recession-driven weak consumer demand, the traditional high street chains are struggling. In a month when TJ Hughes and Jane Norman have gone under, Thorntons, and Carpetright have announced large programs of shop closures and HMV has given up the fight to sell CD’s against iTunes; the UK retail landscape is changing before our eyes.
Online sales create some of the pressure as they continue to take turnover from the high street. However, despite the high-profile failures, the picture is not consistent as the big supermarkets and some chains are thriving. And if you take a snapshot of the European shopping landscape, it’s tough too, but retailers are surviving. So how much of this damage is self-inflicted?
In retail, 60 to 70 percent of a typical retailer’s costs are purchased goods and services. With the majority of their hard-earned sales turnover going to suppliers, the financial impact of getting the purchasing element right is huge. In simple terms, success is a factor of selecting the right products and then buying them at the lowest possible cost. With tight profit margins, it is the latter that is vital. Every euro saved is a euro of margin improvement; and a retail company has to make a large multiple of sales turnover to have the equivalent profit impact.
Large profit improvements are possible if retailers can improve their purchasing. Retailers assume they are good at buying, but we find there is considerable room for improvement, and it is an area where other sectors such as automotive, have already focused. Often retailers simply continue to work with the same suppliers that they have always have done, trying to make incremental improvements whilst, beyond their horizon, the global supply base is dynamically changing, offering cheaper, better, faster opportunities. Clearly, there are areas for improvement. Significant savings are possible and the impact is both tangible and sustainable.
Is excellent procurement the difference between an excellent and average retailer? For those retailers in the tightest squeeze, it could be the difference between surviving on the high street or shutting up shop.
Written by Dr Kiran Mazumdar is Partner at INVERTO, an international management consultancy specialising in procurement, where he is in charge of the Excellence Centre for Fashion & Retail