Online sales and fatter margins: Five secrets behind the retail industry's turnaround
It's been a good year so far for retail. At a time when consumers are still holding onto their cash, a surprising amount of companies have announced positive results.
But it hasn't come easily. Many of these companies are ushering in huge changes to how they do business, including store restructures and some careful scrutiny about cost management. It's a tough business.
Brian Walker, managing director of the Retail Doctor Group, says while consumers may be starting to spend a little more, businesses are also putting in the hard yards to get sales.
"Retailers are looking at markets that are very different now," he says. "The classic ways of looking at marketing are changing and global markets are changing as well. So there are new challenges and new opportunities."
"There's a greater focus on productivity, organisational structures, return on capital and the return on money spent."
The latest results continue the trend. This morning, the corporation behind the Athlete's Foot brand announced comparable store sales had increased by a massive 8.2% in the first half of the year. (Although the company did announce one of its chains, Shoe Superstore, had been placed in administration – the market is still tough for some sectors).
In the past few weeks companies such as Kathmandu, Super Retail Group, Specialty Fashion and JB Hi-Fi have released surprisingly strong results. Even in the traditionally volatile fashion scene, where margins are razor-thin, companies such as Country Road are delivering solid results.
Walker says the positive results are a testament to how a good retail company can survive by staying nimble and spying lucrative opportunities, whether it's through buying an entire chain or simply refitting stores.
"This is one of the big reasons for the department store bell curve – you can see that as businesses mature the need to reinvent themselves has continued."
Refitting stores, instead of expanding
This morning, RCG Corporation announced its Athlete's Foot brand had continued to perform well, with like-for-like sales increasing by 8.2% in the first half of the year.
While there are plenty of reasons for this, a main contributor is the extensive redesign of the business. In fact, these results are the end goal of a long-term plan.
Back in 2010, chairman Ivan Hammerschlag told SmartCompany the business was looking at changing its store fit-outs, instead of opening new locations. That strategy seems to have paid off.
"We think you have to drive the profitability of the stores you already have. There's so much potential in those existing stores already."
Smart customer service
One aspect of retail which goes untouched a lot of the time is customer service. But Athlete's Foot has been consistent in its approach to increasing profit – offering good customer service.
The company always ensures its staff are well trained, and work with the shopper to find the best shoe for them. It's an easy thing to do, but it's surprising how many companies don't understand the importance of well-trained staff.
Making smart acquisitions
Super Retail Group yesterday announced a massive 74% increase in profit during the first half of the year. But that isn't all due to comparable sales. Last year the company made two acquisitions, buying into Rebel Sport and Amart All Sports from private equity group Archer Capital.
And the business is looking at making more acquisitions, with the company saying this week it would continue to consider acquisitions which are a good fit for the company. It's a fine strategy – when your sales are down, it's sometimes a good move to diversify.
Focusing on online sales
Specialty Fashion Group made a strange announcement this week, after it said first-half net profit had increased from $6.16 million to $17.97 million – it said much of that increase was due to online sales.
"Specialty Fashion Group achieved a turnaround in its financial performance through sales growth and margin expansion, largely as a result of aggressively pursuing online sales growth," it said.
This is an obvious one, but it seems Specialty Fashion is actually taking the online revolution seriously. It's an untapped market for a lot of Australian retailers, and exploiting it can sustain some serious growth.
JB Hi-Fi had a mixed announcement this week, although net profit increased, comparable store sales were still down by 3.5%.
However, significantly, the electronics retailer also announced its profit margin had increased by 20 basis points. That's a huge increase for a company which didn't see any substantial uplift in revenue. It means the business is looking at other ways to cut costs.
Inventory, staff costs, transport – these are just a few of the ways businesses can cut costs. Smart retailers are finding ways to do so.