New Karabus survey reveals key steps retail CFOs are taking to succeed in
today's new retail reality
The second annual survey of 26 U.S. and Canadian national retail chains in the specialty and department store sectors examined four key areas: Real Estate, Marketing/Advertising, E-commerce and Inventory Management, and found:
1. Real Estate - Retailers are leveraging the environment to secure
better terms on real estate leases
2. Marketing/Advertising - Retailers are working hard to improve
advertising effectiveness and productivity of spend
3. E-Commerce - Retailers continue to benefit from the growing importance
of an online business strategy
4. Inventory Management - CFOs are examining additional methods to
tightly manage inventory
"Retailers are operating much differently than ever before, having materially restructured their operations to reduce their fixed costs and lowered the top-line revenue required to generate profits," said Antony Karabus, CEO of Karabus Management. "CFOs are carefully scrutinizing all capital expenditures, heightening the focus on performance and raising the bar for spending approval - examining sales forecasts more stringently as they are becoming the key foundational issue driving decisions regarding cost and inventory levels."
Following excessive inventory levels and heavy markdowns at the end of 2008 and beginning of 2009, retailers quickly recognized the need and took action to significantly reduce their inventory. Karabus noted that the study found that in aggregate retailers are now operating at leaner operating levels and planned holiday 2009 at -7% comparative inventory as compared with an average sales expectation of -1% comparative sales.
KEY SURVEY FINDINGS:
1. Retailers are leveraging the environment to secure better terms on
real estate leases
-------------------------------------------------------------------------
According to Karabus, several of the CFOs surveyed said that while they were not getting substantial rent reductions, they were getting more favorable co-tenancy and "kick out" clauses, more tenant allowances and better lease terms. They felt the days of big rent reductions are over unless landlords really feel it is crucial to have a particular retail brand in their malls as landlords now have much better access to financing than they did a year ago and don't feel as compelled especially in the "A" malls where there is still competition for the space.
- Over the past year, 35% of those retailers surveyed said their efforts
to renegotiate leases in the past year have resulted in modest savings
in occupancy that had some effect on their operating performance.
- 22% of retailers surveyed said they did not make any efforts to
renegotiate leases.
- 17% of retailers surveyed said their efforts to renegotiate leases in
the past year had produced substantial savings in occupancy costs.
- Efforts by those retailers surveyed to renegotiate leases in the past
year produced 3-5% reduction in their real estate costs.
- 32% of survey participants used co-tenancy clauses as a negotiation
vehicle.
- 60% of retailers surveyed said they did not defer new store openings
for 2009/10; 40% of participants deferred new store openings for
2009/10 by an average of 55%.
2. Retailers are working hard to improve advertising effectiveness and
productivity of spend
-------------------------------------------------------------------------
Retailers are working hard to improve advertising effectiveness and productivity of spend, as 40% of the retailers surveyed moved from traditional broad based advertising towards more targeted promotions to existing customers. In fact, according to
- 50% of retailers surveyed said that due to savings offered by their
media and marketing partners, they were able to reduce their
expenditures without materially affecting their customer outreach
efforts.
- None of the respondents reduced the amount of advertising as they felt
it was crucial to mitigate the effect of reduced customer traffic and
spending.
- 40% of retailers that reduced their advertising and marketing
expenditures compensated for it with initiatives involving CRM,
customer-specific promotions, etc.
- Only 5% of those surveyed increased their advertising and marketing
expenditures in order to gain market share and felt it had been a
successful tool.
- On average, retailers re-allocated about 6% of spend to e-commerce.
3. E-Commerce - retailers continue to benefit from the growing importance
of an online business strategy
-------------------------------------------------------------------------
Retailers see the direct channel as an opportunity for growth and an avenue to more frequently connect and communicate with their customers while helping to offset the decline in revenue being experienced in their brick and mortar stores.
- Nearly half of the retailers surveyed are seeing better sales online,
as approximately 44% said their e-commerce sales were growing faster
than their overall sales.
- Surprisingly, 17% of the retailers surveyed didn't have a fully
operational and transactional e-commerce site but were planning on
enhancing its functionality in the near future.
- On average, retailers surveyed have been selling over the internet for
five and a half years now, with e-commerce sales accounting for 6% of
their total company sales.
4. CFOs are examining additional methods to tightly manage inventory
-------------------------------------------------------------------------
According to
Of those surveyed:
- Retailers are taking a broader approach to inventory management,
looking beyond merely cutting orders, with 36% of the CFOs surveyed
saying that flowing goods closer to sales was the most important
factor in reducing inventory levels this fall compared with last year.
- Reduction of open to buy quantities ranked second with 28% of retailers
surveyed stating it as their top priority.
- Assortment and vendor editing ranked third, with 16% of retailers
surveyed saying it was the most important factor. As retailers trimmed
inventories, they looked to shed entire brands or categories that were
less relevant to their customers as opposed to taking modest, across
the board reductions from their entire assortment.
2009 holiday priorities for CFOs:
---------------------------------
With many experts predicting a flat 2009 holiday season versus last year, CFOs rank their top three key priorities for 2009 holiday season:
- 40% of retailers surveyed said cash flow management was their top
priority. As the cost of accessing even short-term capital has
increased dramatically, retailers are managing their cash carefully to
avoid increasing borrowings and, where possible, have re-negotiated
credit terms. Unlike previous years, many avoided a premature build-up
of inventory (and corresponding cash outlays) and flowed purchases
closer to actual needs.
- 24% of retailers noted that tighter inventory management was their top
priority. The increased focus on cash combined with a greater
organizational focus on "profitable sales" resulted in lower
inventories and a view that this year, it would be better to run the
risk of selling out at higher margins rather than accept the risk that
owning too much inventory might drive unwanted markdowns.
- 16% of retailers surveyed ranked additional cost savings as their top
priority.
- A minority of retailers surveyed were focusing on driving initial mark
up percent through sourcing initiatives.
"However, we continue to see significant opportunities to drive productivity out of the merchandise planning function to increase gross margin return on investment (GMROI). We see this as a critical tool to improve sales and gross margin dollars in an essentially flat comparative sales environment."
"As we approach 2010, retailers today are much better positioned than they were a year ago, with streamlined operations, leaner inventory levels and more stable debt positions. While the answer of when the consumer will return is still unclear, retailers need to remain focused on driving efficiencies across their operations to best position themselves for survival and success when the consumer returns. This is a new reality we're living in, and the way retailers operate has fundamentally changed for the long-term," concluded
Notes on Survey Methodology and Analysis
----------------------------------------
Karabus Management surveyed 26 leading national retail chains in the specialty (80%) including apparel, jewelry and footwear, and department store (20%) sectors, with annual sales ranging from
The survey findings provided by Karabus Management are solely intended for informational purposes. Any actual application of leading practices to a particular organization requires consideration of many organizational specific issues such as quality of leadership and talent, culture, strategy and organizational lifecycles. In addition, the statements above speak as of the date of this release. Factors could arise after this date that could affect the outcomes and forecasts set forth above. Karabus Management shall have no liability to any party for any action taken or not taken, or results obtained, in reliance on this information.
About Karabus Management Inc.
-----------------------------
Karabus Management Inc., a subsidiary of PricewaterhouseCoopers LLP, an Ontario limited liability partnership, is a leading North American retail advisory firm that helps retailers significantly improve their operational and financial performance. The firm's more than 50 dedicated retail consultants work with many of North America's leading retailers. For more information, please visit the company's website at www.karabus.com.
About PricewaterhouseCoopers LLP
--------------------------------
PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. In
"PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate legal entity.
For further information: Carolyn Forest, PricewaterhouseCoopers LLP, (416) 814-5730, [email protected]; Jessica Liddell/Melissa Jaffin, Berns Communications Group, (212) 994-4660, [email protected]
Share this article