Clicks versus Bricks the ongoing battle for market share

Amazon predicted to be 9^th biggest retailer in the world by 2018 has no stores.

In the UK the impact of Amazon’s business model on leading High St retailers has been devastating. Groups such as Comet has disappeared and HMV have gone into administration.

Amazon now has just under 25% share of the UK entertainment industry. Forbes recently listed Amazon at number 33 in the world’s most valuable brands.

Amazon are focussed on playing the long game and one of the keys to their future strategy is the latest buzzword "personalisation".

bbThis is the mechanism of presenting customers with tailored, relevant content as they shop and in doing so increase conversion and generate loyalty

Despite the increased usage of this technology, it is still relatively new to the market but will undoubtedly evolve to become a prime factor in driving the future of ecommerce.

More ecommerce companies are devoting increasing resources to develop personalisation software.

Several leading brands are assigning more internal resource to creating a truly personal customer experience by appointing teams of ‘personalisation experts’.

As with traditional retailers ecommerce companies are now placing greater emphasis on using real insight to make customers feel like valued individuals as they spend time shopping on line.

All of this blurs the traditional lines and retailers face a common problem delivering what the consumer demands efficiently and free of delivery charge at prices which reflect ever squeezed profit margins.

 

A regular review of the company’s business plan is a necessary discipline

 

As business practices change and external factors come into play a regular review of the company’s business plan will ensure that the company stays ahead of the game.

The review if done correctly should result a realistic, objective and clinical appraisal of the business.

Following an analysis of the business plan it should be easier to communicate objectives and strategies to those funding the operation and also to the company’s employees.

The review will serve as a reference point when determining the effects of alternative courses of action on business operations.

A clear assessment of current working practices should highlight areas where the company may require outside assistance.

An analysis of the current inventory levels and receivables will provide the answer to the future growth and capital requirements of the business.

As business practices change and external factors come into play a regular review of the company’s business plan will ensure that the company stays ahead of the game.

The review if done correctly should result a realistic, objective and clinical appraisal of the business.

Following an analysis of the business plan it should be easier to communicate objectives and strategies to those funding the operation and also to the company’s employees.

The review will serve as a reference point when determining the effects of alternative courses of action on business operations.

A clear assessment of current working practices should highlight areas where the company may require outside assistance.

An analysis of the current inventory levels and receivables will provide the answer to the future growth and capital requirements of the business.

Turning stock back into cash

Stock turnover ratio equals cost of goods sold during a specific time frame, divided by the average stock holding during the period.

The result of this ratio gives the "number of days that on average money is tied up in stocks". The longer this is, obviously the worse this is for the business as the money is not available to be used elsewhere.

An stock turnover ratio of 20 means that the average amount of stock holding during the year has been renewed, or turned over, 20 times over the course of the year.

Dividing the number of days in the period under consideration by the turnover ratio tells you how many days it takes, on average, for the warehouse to empty and then be refilled. The number of days in a year, 365, divided by 20 is 18.25. So the entire stock is fully sold and replenished every 18.5 days, on average.

As a general rule, the higher the stock turnover ratio, the more efficient and profitable the firm. A high ratio means that the firm is holding a low level of average inventory in relation to sales.

Carrying stock ties up money. This money is either borrowed and carries an interest charge, or represents funds that could otherwise be better used in servicing other elements of the business.

There are additional costs in holding stocks such as storage and the risk of getting spoiled, breaking, being stolen, or simply going out of style.

Wherever possible companies need to reduce stock holdings and there are various means by which to achieve this aim:

Liquidate slow-moving or obsolete stocks.

Introduce more efficient production techniques to reduce stock holdings.

Rationalise the product range weeding out the under performers and thereby reduce stock carried.

Negotiate sale or return with suppliers in order to avoid being stuck with unwanted product.

 

Boosting sales performance

 

Here are a few tips by which you can drive sales:

Focus on niche markets - there is an advantage in positioning your company as a market leader in a niche market.

Target a niche market that drives the greatest sales, profitability and quickest sales cycle.

This will produce sales growth with the least amount of effort. Niche market leaders generate strong sales revenue and profit growth driving up the value of their business.

Promote your products - deliver increased sales growth by offering customers bespoke packages such as volume discounts, extended contracts or product bundles.

There is no merit to be gained from discount pricing on your offerings if they truly provide the value described.

Develop your brand - unique design, functionality and technology can make your products proprietary, which can increase the desirability of your products/services and the price a buyer is willing to pay. Branded products offer protection from the competition and enabling sales of products at a higher price and profitability.

Highlight your USP - even if your company are offering products that are not proprietary, it is vital that customers recognise what makes your company different to the herd.

When you do this successfully, your company becomes the first choice and achieving sales targets will not be an issue.

Jettison underperformers - the best way to dramatically lower your costs and improve profitability is to shed underperformers. Evaluate all of your products and services and delist them if they are not profitable or helping to drive sales of your other products.

Ensure that marketing is delivering a positive return on investment. Less easy is the evaluation of the sales team but in reality underperformers are a luxury no organisation can afford.

 

A gun to the head

 

As more and more companies struggle with their cash-flow issues, they are revisiting their payment terms with their suppliers.

A case in point is the recent review by Marks and Spencer which resulted in them imposing extended payment terms from Freight-on-board (FOB) suppliers who have seen their payment terms extended from 60 days to 75 days, while full-service-vendors (FSV), who transport, store and deliver goods for M&S, saw their payment delayed from five weeks to seven weeks.

The changes, aimed to boost Marks & Spencer's cash flow, further angered suppliers. M&S's major suppliers were upset in October 2011 when the firm asked them to make a one-off contribution of 1.25% of their annual turnover with the retailer to its store revamp programme and associated advertising.

In reality the suppliers have little alternative – if you want to keep trading then you have to accept the “realpolitik”.

The key is to make the most of available cash resources which inevitably leads to some hard commercial decisions. Late payers are a luxury that no company can afford in this climate. Stock must be turned into cash as quickly and efficiently as possible.

Those who either will not or cannot adapt to the demands of today’s business will go the way of the dodo.

 

A leviathan for our times

The recent commissioning of the world’s largest container ship the Maersk's Majestic underscores the competitive nature of international shipping.

The vessel is a quarter of a mile long and has the capacity to transport 18,000 20-foot containers.

Manufacturers of electronics and mobile phones are shipping cargo by sea because competition was eroding their profit margins focussing their attention on cutting delivery costs.

Each 20 foot container can hold 13,000 smart phones with a transportation cost from China to Europe of 7 pence per unit and a transit time of approximately 25 days.

Currently there are over 6000 container vessels operating with a significant number engaged in the East to West trade routes.

China’s economic success remains export driven as illustrated by the cost of shipping a container. Inward from China to Europe costs around US$1500 with the reverse journey only commanding a rate of around US$700.

Traffic will continue to moving onto the water because moving goods by air is very energy-intensive and the high cost of jet fuel makes air freight too expensive.

 

Macho management style – rather passé

 
The media like nothing better than to bombard us with negative news in respect of job losses, scale of personal and government indebtedness etc.

A case in point is the recent reporting that cereal firm Weetabix are being consulted over possible cuts to pay and working hours.

Management are planning a 10% cut in production staff wages and a wage freeze for other staff.

The company said it needed to be able to "adapt to meet the changing needs of today's modern families".

From interaction with companies across a broad spectrum of business there is no doubt that negative news is having a significant impact on morale and therefore impacting bottom line results.

It is important that managers take on board the effect of these outside inputs on staff and wherever possible reduce the "fear factor".

All too often the default position from management style is to rely on pressurising people to attain often unrealistic targets. Far from improving performance it has the opposite effect.

It is time for a rethink - instead of relying on the stick approach, how about hitting with a carrot?