By Bill Scott, President, StoreReport LLC
Last week, a friend was complaining about the fact that he had gained thirty-pounds since Christmas, and he didn’t know where it came from. Neither could he recall any unintentional life changes. He didn’t sit down and eat one, 30-pound meal in a single sitting, that’s for sure. If he had done that and survived he would have most certainly remembered it.
When we find ourselves in a pickle, it’s human nature to point to one thing that caused us to be in the mess we’re in. “I shouldn’t have done this or that.” But the absolute truth is, it’s rarely one thing we did wrong, it’s a series of little mistakes that could have been avoided if we had paid just a little bit more attention.
If my friend had keep a diary of everything he consumed–calorie intake, exercise schedule, miles walked, calories burned, etc., finding an answer to his question, “How did I gain thirty-pounds in six-months?” would have been, as Sherlock Holmes would have put it, ‘elementary.’ But who keeps a diary these days?
The outcome of our friendly conversation prompted him to go on a crash diet, probably one he will break several times before he reaches his goal, but the worst that could happen is he might not have to buy new clothes.
Why do we set ourselves up for failure in order to save a little bit of time?
Every failure can be traced back to overlooking details during our journey through life. No one sets out to be a failure. In order to save time, we often set ourselves up for failure by taking shortcuts. The ‘race to success’ almost always ends in disaster. Success is not a race. It’s a slow, methodical journey that must be reinvented each time the environment changes. Retailers must change as their environment changes, and growing larger creates a dangerous change in their environment.
Yesterday, I wrote a letter to my local grocer who is going crazy buying up small, rural grocery stores. For 10 years, a great place to shop, mainly because of its convenience, I pointed out that on my last visit, 46% of the items on my shopping list were missing from his store, forcing me to go elsewhere to obtain the products I used to buy there. This is a serious problem for him. He has become infected with “mass market syndrome,” and lacks the infrastructure to manage growth. Oh, he had plenty of inventory, most of it was redundant (the same items in multiple brands), but a lot of the popular items had gone missing. My prediction is that if he doesn’t change soon, he won’t last out the year.
Incidences such as the one above are common. Usually the problems go unnoticed because there is no system in place to identify them before it’s too late. In the above case he was warned by a loyal consumer. Usually, customers remain mum, and just move on to another retailer leaving the retailer to wonder, ‘What happened?’
In my vocation of computer programming, automating a process requires us to closely examine how the manual process works before we start. If a program is designed and written correctly the actual process becomes invisible; however, if something unexpected creeps into the process, it can create a disaster. Situations such as this are erroneously referred to as ‘bugs’ in the system, when in actuality the error can be traced back to an unexpected event that didn’t exists when the program was originally written.
Once a customer bought payroll checks with the amount field only large enough to support an amount of $9,999.99. Everything went well until he tried to write a quarterly check. Then the amount could not be printed on the check without wiping out numbers in either of the two adjacent fields. He was upset when he had to order new checks.
Likewise, a business encounters unexpected events constantly, and when we delegate responsibilities to others, it’s much like sending data to a computer process and assuming it will return the correct result, giving up accountability for the process and resulting in a pandemonium when the people in charge of the process don’t fully understand how the process works.
About a year ago, I got a call from one of our customers who wanted to know the last time he sold a particular product. A quick look showed the last sale occurred 90 days in the past. He recalled that he had reordered the product manually and the supplier didn’t send it. He reordered it the second time, and again the supplier failed to send it. Then he forgot about it, and slowly other products began creeping into the missing product’s place on the shelf. Since the product no longer existed, a store clerk removed the shelf tag. It was estimated that it cost the store 84 sales and $108.36 in profit.
Doing additional search, I discovered that more than 20 additional products had mysteriously stopped selling during the past 90 days. Multiply that by the 33 stores the company operated, and we see the total losses for this company might have amounted to around $75,093.00. Don’t tell me this is not a significant loss, and only one of the reasons convenience stores are seeing an unacceptable 2.1% profit overall.
If a competitor opens a competing store in your neighborhood, alarm bells should be going off in your head, warning you of the danger. If you choose to take a wait and see attitude, it could result in a fatal mistake. The bigger the business, the greater the danger. This fact provides an opportunity when competing against larger retailers. Larger retailers are more prone to ignoring the small details.
Retail is Detail
I have always been fascinated with details, and after reading professor Jonathan L.S. Byrnes’ book, ‘Islands of Profit in a Sea of Red Ink,’ I have become a downright pest about it. Nothing really important was ever accomplished by cutting corners. Real professionals in every vocation pay meticulous attention to details, else it’s nothing more than a hobby. As you get older you regret these things, but when you’re young, no one can tell you different. I have so many regrets I try not to think about it. What if I had finished school? What if I had said ‘no’ to that first beer? Why did I delay starting my own business for 35 years? Who hasn’t fantasized about going back and changing the past?
Almost every profession has an idiom about the dangers of becoming too involved in details. As an accountant, I have often used the phrase, “A dollar chasing a dime,” pointing out the practice of wasting many hours of valuable time trying to find a few pennies to balance a Financial Statement. I once spent two days helping a bookkeeper find 10 cents, and vowed forever not to do that again. But it taught me a lesson–paying attention is easier than fixing a mess after you screw something up.
Once, I was discussing my computer software with a CPA of a new customer. I was somewhat ashamed that I had to learn accounting by reading books and years of practice, so naturally I was somewhat nervous being grilled by a professional with years of schooling and letters after his last name.
All went well until he asked me where the ‘WITTB’ account was. Finally, after admitting that I had no knowledge of what a ‘WITTB’ account was, he burst out laughing and said, “What it takes to balance.” I guess that’s something they teach you in college.
“Penny-wise and pound foolish,” is a popular English idiom. Driving 20 miles out of your way to save two cents a gallon on gasoline is a good example of this. My wife and I fight about this all the time. “Don’t buy fuel here,” she counseled, “It’s two cents cheaper in Georgetown.” Georgetown has one gas station and about 100 citizens.
I do believe that most of us are programed at birth to look for short cuts in life. So goes the lyrics in the well-known, traditional Scottish song, “The Bonnie Banks o’ Loch Lomond.” “O ye’ll take’ the high road, and I’ll take’ the low road, and I’ll be in Scotland afore ye.” I am using my best Scottish accent as the words drone on in my head. That song was written in 1841, long before Google Maps. Get the message?
Computers shrink time, resulting in fewer hours needed to accomplish our work before we head out to our favorite watering holes after work. That gives us additional time to use the tools that make us more precise in our thinking. As Jonathan L.S. Byrnes alluded to in 2005, “We have moved into a new era which require new imperatives, from ‘Mass Markets,’ to ‘Precision Markets,’ from ‘product driven’ to ‘customer driven.’” I highly recommend that everyone read Jonathan’s superb book.
Byrnes is taking the words right out of my mouth, but he does it so much more eloquently.
In the Same Way Gasoline Is Related to Automobiles, Inventory Is Related to Sales
Inventory drives retail, just as gasoline powers automobiles, and if you don’t know that, you are in danger of becoming extinct. Attempting to manage inventory by category is one of those short cuts that has been obsoleted by computers.
Over the past 150 years, oil companies and prospectors have drilled more than two million oil wells. Now drillers use typographical maps, aerial photography, sound waves, 3D projections and other tools to help form an educated guess about the size, shape and consistency of the oil or natural gas that lies beneath. (Source– history.co.uk)
In the 80s, one of my customers told me he had to drill nine new wells before he struck oil, so 90% of his cost of drilling for oil came from those nine, dry holes. The guys that did that were called “wildcatters.” I’m sure there are still wildcatters around these days, but the technology to drill for oil has improved over the years. We now only have to drill five new wells before we find oil.
I’m not against category style management entirely. Category Management is the canary in the coal mine, whose sole purpose was to die before the polluted atmosphere started killing human beings. Coal miners now have sophisticated electronic equipment that is far more reliable and accurate than a dead bird.
But, the comparisons between wildcatters and canaries, and retailers and Category Management is a good one, because it helps to demonstrate how Mass Markets are morphing into Precision Markets, likewise using sophisticated technology also lowers costs and improves accuracy.
Used to be that there was so much profit from inside sales that it didn’t matter that 70% of the inventory wasn’t producing a profit, and the cost of finding out why was greater than the losses incurred within the categories; however, now that profit margins are decreasing and competition is increasing, and inexpensive technology is available to manage items instead of categories, it only makes sense to use that technology to get rid of the 70% of items that are failing, and replacing them with items that will perform well and produce a profits.
How inexpensive? Well, for example, while there may be others, we have a system that can do this for about $2.50 a day, and can be expanded to handle auditing, ordering, and sophisticated analysis as well. But, the collection of the data is only the beginning of the story. Once you have the data, it opens a lot of doors you never even knew existed, and that is precisely how we evolved from the invention of the airplane in 1903 to walking on the moon a mere 66 years later.
MASS MARKETS REQUIRE MASS MARKET TECHNOLOGY, PRECISION MARKETS REQUIRE PRECISION MARKET TECHNOLOGY
There are many distinct and identifiable differences between mass markets and precision markets. Mass markets are created by driving customers into stores with programs and products, such as Walmart’s famous ‘rolling back prices’ campaign, whereas precision markets deal more with the details and concentrate on the consumer.
Walmart is a mass market company, and has been struggling to move into precision markets with lackluster success. In late 2014, Walmart announced its plans to concentrate on ‘price, assortment, experience and access,’ clearly a more precise method of operation.
For years, Walmart has attempted to take over the convenience store industry, but they have been unable to hit the numbers that increases shareholder value. For example: in January of this year Walmart announced it will close 102 Walmart Express locations, which are twice the size of the average convenience store to “ensure that its assets are aligned with its strategy,” whatever that means.
Will Walmart ever make good on its promise to steal the convenience store industry? It’s doubtful, because Walmart is a mass market company, and everyone from the CEO down to the person that sweeps the offices in Bentonville, Arkansas has a mass market mentality.
But, Walmart has another problem. Walmart is no longer the price leader in retail. Amazon is. Walmart is between a rock and a hard place as demonstrated by its recent attempts at cutting inventories, concentrating on fast moving, high profit items, widening their aisles, restocking during the day, strengthening store management, squeezing their suppliers for deeper discounts, building smaller stores and appealing to more affluent customers—exactly the right moves to enter precision markets, but the resistance at headquarters must be horrendous.
Eating an elephant can only be done one way: One bite at a time. And the turmoil within Walmart’s infrastructure is the most exposed tear in Walmart’s environment. We all know the best way to accomplish something big is to approach it in smaller pieces, and Walmart doesn’t do anything small.
Small retailers have an unfair advantage over Big Box retailers, because of their small size and their ability to move quickly against larger competitors. It was once said, “It would take IBM 90 days to ship an empty box,” and that’s precisely why IBM lost the small business computer industry.
It’s time that small retailers stop operating like mass market retailers and concentrate on precision markets instead where they have a real advantage.