The good thing is that most of the margin leakage that occurs can be identified and recovered in repeatable patterns. Analysis of those patterns can link profit leakage to discrepancies between what should be the case and what is the case in data, processes, and task performance.

There has always been some inherent inventory distortion built into retail. The distortion can occur for many reasons: inventory is miscounted or entered into the system incorrectly, merchandise can be stolen or scanned incorrectly at point of sale (POS), products can get damaged and are not removed from the inventory system properly. These are problems that can’t completely be eliminated.

The key is to identify trends and correct the underlying behaviors. Pattern-seeking technology can help. Patterns tell the story of what’s occurring within the retail enterprise. Retailers are then able to pinpoint the root causes of Inventory Distortion, and receive actionable tasks which eliminates profit leakage and lost revenue opportunities across the retail organization.

In a recent IDC Research “Analyst Connection” report, analyst Greg Girard says, “Retailers can reduce, if not eliminate, profit leakage by maintaining the integrity of the profit pipeline. Most of the value in profit leakage can be identified and recovered in repeatable patterns. Analysis of those patterns can link profit leakage to discrepancies between what should be the case and what is the case in data, processes, and task performance.”

Retailers should go after the most valuable of these discrepancies using time tested best practices, and corrective actions that are monitored by a task management system. Correcting profit leakage deserves priority within retail because it can deliver profit to the bottom line and increase revenue quickly.

Consequently, the series of reports are developed to ‘manage the process’ that was implemented.  What you end up with is a 50-50 chance, at best, that a report is being read, analyzed, understood and reacted to in the manner that was anticipated.  Is this good enough?  50-50 is not a recipe for success in any business, especially in retail where staff turnover leads most other industries.

Think about what we’re asking people to do and then ask yourself, why isn’t this automated?  Why are we expecting different results while we do the same thing over and over again. Technically, data can help identify when performance is within specific guidelines.  Data analysis can establish performance patterns that indicate when the anticipated behavior is being achieved and conversely, when it’s not.  This could be an automated signal which would simply ‘tell the manager’ that you have a failing process, or altered process than prescribed, and here is what you should do to correct it. As a matter of fact, this automation is available today.

Profit amplification is a solution that understands the process flow from procurement to POS, and back (with credits, damage, returns, etc).  It recognizes when what we expect to occur isn’t, and also what needs to be done to correct this condition.  Profit amplification also aligns with retailer’s standard operating procedures so when a pattern is recognized by the solution it also sends the best practices to correct the condition.

Assuming is never encouraged and layering our managers with even more reports to analyze and act upon will never generate the preferred outcome.  Profit amplification can change that result.

Some retailers receive periodic “Out of Stock” reports, that can alert them if products are not available on the shelf. These systems are checking the demand patterns for the goods and see that certain products are being sold an average of X times per hour at a specific store. Then the system  recognizes the hours in which the product was not sold, but should have been, based on the patterns, or was sold at a much lower percentage The time period of these events are then identified as out of stock . These retailers may be able to identify when products are out of stock, but what about why the product was not available?

There are many possible reasons a retailer would have high OOS and low OSA, and it is important that the cause is identified in order to minimize the problem. Obviously, the retailer is hurt by the lost sales that result from OOS, but so is the vendor who provides the products. It is in the best interest of both parties to ensure accurate OSA. Accurate inventory allocation helps the vendor maintain consumer loyalty and helps the retailer improve consumer satisfaction.

For example, assume a popular brand like Procter & Gamble (P&G) is supplying a grocer with goods. For some reason, their brand of shampoo is currently not on the shelf. When the consumer walks down the personal care aisle looking for the shampoo and finds out it is not there, are they going to put back the rest of their groceries and leave the store in search for the Procter & Gamble brand shampoo?

Most likely, not. The consumer will look for a similar product, whether it be another P&G product or a different vendor.  The retailer may have not lost the sale, but they did lose some of the customer’s satisfaction when the product they wanted was not available. The vendor, however, lost both the consumer’s loyalty, as well as the revenue from the lost sale.

To help make sure the inventory levels are as accurate as possible, vendors will often collect data from the retailer and create a “demand signal repository”. Often times the high level data looks right, but the store level detail data is unreliable, because of things like inventory distortion.

Vendors have been trying for years to obtain useful data from retailers, but neither they, nor the retailers are aware that the data collected is often distorted and unhelpful. As one can see, the problem seems to be cyclical.  Skewed data is collected and then used to create replenishment models, which then further skew the inventory levels. To truly stop this downward spiral of increasing OOS and decreasing OSA, a retailer must find a way to accurately assess inventory.

A profit amplification solution can counteract inventory distortion by looking at the entire retail value chain and identifying the actual causes of the distortion and OOS. Pattern-recognition algorithms pinpoint products that are not on the shelves, identify in which stores products are missing, and at what times they are not being sold. Poorly performing stores will be provided actionable tasks to empower them to operate like well performing stores, and the retailer as a whole will begin to operate more efficiently. Now with reliable data, inventory distortion is minimized, and the data collected by vendors is accurate. With accurate OSA, customers will be able to make the purchases they want, and both vendor and retailer will achieve the highest revenues possible.

Whether through advertising, discounts, or special events, heavy promotional efforts might be needed. When they start selling the product, it must be on the shelf in the right location, in every store. Many of these new products or services will go hand-in-hand with existing goods in the retailer, and they should be placed to encourage bundling, creating the “Halo” effect. For example, when Best Buy implemented their Geek Squad service, they made sure to put it right next to the computer section, an area where most people need the Geek Squad assistance.

If the new product isn’t in the right place, or is not shining the way it was intended by the merchandising teams, and the retailer did not follow the agreed upon plan-o-gram, odds are the product will not sell, and the goal of increasing revenue will not be achieved.

How will a retailer know which stores are selling more of this new product, which are selling less, and most importantly, why is this so? Is their promotional effort insufficient? Is the product display lacking in appeal? Are they out of stock? And if the poorly-performing store alters their practices to reflect what the successful store is doing, will they sell more?

The traditional way to determine the cause of the problem is to go to the stores and observe their practices. These store visits cost a lot of hours, and some retailers are engaging their vendors to help the merchandising team making these visits. However, this is an insurmountable task for many global retailers with thousands of store locations. While they may be able to compare same store sales, retailers lack the ability to perform item level analysis to determine root causes impacting the difference in sales.

Profit amplification makes the task of identifying “why” obtainable and easier to accomplish. The algorithms in the solution will search for patterns of what product is selling more (or less), in what stores, and provide reasons as to why. With the patterns identified, one can take this information and analyze the stores on the bottom, prioritizing them as opportunities and translating them based on best practices to tasks to be performed either by vendors, merchandising teams or the store associates themselves. The opportunities will also enable the retailer to do a value-visit to the necessary locations, as opposed to randomly visiting stores that will most likely result in wasted time and resources. Visiting the identified stores allows the retailer to pinpoint exactly what needs to be changed in the store to raise the new product line’s sales, increasing total revenue, therefore profits, as a whole.

One of the reasons being the predictive analytics, behind most forecasting solutions tends to have an underlying “forecast error”.“Prediction is very difficult especially if it’s about the future” Nils Bohr. This forecast error is a product of a number of external factors, for example, mild winters would result in lower sales of coats and if they were forecasted using previous three years of seasonality model there will be “forecast error”. Most if not all retailers also do periodic reclassification of merchandise (move products around in the merchandise hierarchy) which could result in this forecast error. Eventually the lower sales would result in a markdown recommendation but it would come too late. They would already have inventory built up in the DC/stockroom by then. The last thing for any retailer today is to have to deal with taking the merchandise down to clearance all at once and take a bigger hit on the margins.

What the buyers/planners need here is a solution to analyze the sales trends on a daily basis as a reality check. They need to look at the effects of climate, promotions, holidays in order to gauge the effectiveness of their current markdown decisions.  This sales analysis would give them an idea of consumer price sensitivity as they breakdown the total sales by temporary markdowns, permanent markdowns and full price. An additional insight into the shrinkage to analyze trends for most damaged/stolen products against their OSA would empower them to make the most effective planning decisions. The evaluation could be done at several levels from Division right down to the color/SKU level by season or promotion (or any product attribute for that matter!).

This profit amplification solution will also enable the merchandisers to monitor vendor performance not only for quality but also for how long they take to fill the order, especially last minute orders. The pattern recognition for vendor shipments can also be applied to inventory flowing from warehouse to stores to identify ambiguous patterns and apply corrective actions. This will drive up the accuracy of virtual allocations and help them achieve their target sell-throughs. The buyers/planners could do a trend analysis for store performance either across the store cluster or the region right up to the chain level. The tool has powerful built-in retail analytics that will enable alignment of KPI across departments allowing greatest visibility to the causes for profit leakage.

Thus more power to the merchandiser would result in consumer driven planning and allocation decisions in turn driving up sales and margins.

In this case, the store would receive and weigh whole chickens, and enter that weight into the inventory system. The butcher would then proceed to separate the chicken into parts to sell (wings, breasts, thighs, etc.), weighing and pricing each part accordingly. The butcher would dispose of the fat and other leftovers that remained from the butchering process.

Following the chicken from the moment it enters the store (as a whole chicken) until it leaves the store in parts, this process was identified  as a large contributor to leaking profit. It was found that after the chicken was broken into the parts, only 70% of the whole chicken was actually sold.

Two factors were the primary contribution to the 30% in loss:

1. 1. 10% of the chicken was unwanted parts with very low sales demand
2. 2. Depending on the skill of the butcher, the other 20% was thrown out or wasted

The fact that only 70% of the chicken was being sold is only half of the story.  The other half of the profit leakage came from the fact that the 70% was being sold collectively at a price lower than the cost of the whole chicken. So the total revenue from selling the parts was lower than the cost of the chicken, therefore causing the grocer to lose money with every sale.

The analysis allowed the company to find the driving factors of the profit leakage, therefore enabling them to provide several recommendations to the store on how to address and correct these issues:

1. 1. Re-examine the pricing of chicken parts relative to the whole chicken
2. 2. Hire professional butchers and/or retrain those currently employed
3. 3. Re-examine the economic benefit of “breaking down a chicken”
4. 4. Develop an orderly process for keeping track of the waste from breaking down chicken
5. 5. Clearly distinguish between the waste from an expired product vs. the waste of the remains due to “breaking down a chicken”

After successful employment of the above recommendations, losses in the fresh chicken category of the meat department decreased by a full 12%. In the grocery industry, where margins tend to be low throughout, a 12% decrease in loss directly impacts the company’s bottom line.

This analysis was performed on one product, in one department of an entire store. The company was able to successfully identify where profit was leaking through this analysis, allowing the resulting 12% decrease in loss to go directly to increasing the profit margin. This type of analysis and pattern recognition can be performed on any and all departments within a retailer of any vertical, helping identify different areas throughout the value chain that will allow the retailer to leverage noticeable profit amplification.

Big data can greatly improve operational efficiency as well as evaluate cashier performance at a close to real-time basis, helping managers make concrete adjustments to operations in a timely manner and introduce predictability to the way they run the business. The opportunities are endless, and with better ways to collect and analyze data continuously being developed, retail is realizing that not only the size, but the potential of big data is growing and will continue to grow.

The benefit of such a large quantity of data is the ability to gain more (and higher quality) insights into the patterns and trends of a business; with these insights being much more accurate due to the fact they are based upon a large set of data. With each additional data point comes the ability to cross-reference and correlate different variables, helping illuminate which variable affects or even impacts another. Better understanding of the relationship between variables sheds light on patterns, giving a retailer a more accurate understanding of the true root causes of certain events and transactions. With better guidance and insight, retailers can better-allocate resources to the necessary areas to repeat the desired outcomes, and to minimize the unwanted occurrences.

For example, it may help determine a particular driver for customer purchasing behavior that a retailer would want to exploit with a new promotional strategy; or the analysis could demonstrate a pattern with a poorly performing operational procedure, like inventory management, that needs to be adjusted in order to reduce costs and grow revenue.

One inventory distortion issue that big data analysis can help with is identifying areas of out-of-stock. In a grocer with multiple stores within a region, one store in particular was experiencing significantly lower revenues in their prepared food department when compared to other stores across the region. After analyzing the data with additional clustering techniques, a pattern was found where the store in question tended to make its last sale in this department an average of one hour before the other stores. In other words, while this store ran out of inventory at noon, the rest of the stores weren’t sold out until 1 o’clock. The big data analysis allowed the store to identify their out-of-stock issue that was a result of low inventories. This issue was identified in a fairly quick manner allowing the retailer to respond and correct the issue.

A pattern was recently found through big data analysis in the snack category of a grocer. The pattern consisted of a 50% increase in claims as a percentage of sales for the same region, and damage for this category also trended upward. As it turns out, product was shipped with heavier boxes being placed on top of lighter ones, resulting in damaged product. These damages were due to issues at the distribution center, where employees were unaware and poorly trained on proper packaging and shipping procedures. As a result, distribution center employees were re-trained on proper procedures. The analysis of the data identified trends which brought this problem to light, otherwise profit would have continued to leak until someone realized there was an issue.

Big data is being amassed in many ways, including using new data warehousing technologies and cloud computing platforms. These mediums help organize the data in ways that will make it easier to collect, store and analyze, with the analysis being what provides us with insight into patterns. Without a way to properly manage big data, important data sets will be lost, which will reduce the accuracy and increase the error of the assumptions that are drawn from insights. Just like with any causal research, analyzing a small sample of the population (of data) rather than the whole population will reduce the reliability of the results.

When retailers are able to not only store the big data, but also analyze it accordingly, they should be able to make accurate, reliable decisions based off the analysis. This will give them the ability to leverage data-driven marketing, merchandising, and operational strategies that give them the advantage over competitors that they seek.
It is in the best interest for retailers everywhere to figure out the optimum way to utilize the big data phenomena in order to gain the limitless insights that will help them increase productivity. Profit amplification is a solution that can easily integrate all available data from POS, ERP and other core systems, in order to identify trends and patterns for analysis. These new insights gained from big data analysis should provide a strong competitive advantage, and give the retailer a step ahead in creating an efficient way to minimize costs, increase revenues, and ultimately build a larger profit margin.

If a concrete best practices bank is not available, extracting operational procedures from the corporate culture should suffice as a source for actionable tasks. One practice that retailers must engage in to build a strong organizational structure and culture is knowledge retention and management. In retail, employee turnover is so high that having a proven,  standardized way of performing everyday tasks is a necessity to operate profitably. Using knowledge management, if an employee discovers a different process that is more effective and/or efficient than the previous method, that process is identified as the new best way of doing things, and becomes part of the organizational culture. In other words, properly managing knowledge in a retail organization means identifying, distributing, and institutionalizing the best way of doing things, in regards to minimizing the cost (time and money) it takes to perform each task.

For example, a sporting goods store manager may realize that assigning employees to specialized areas of the store, (one for soft goods, footwear, hardgoods, register, etc.) instead of assigning them to every department interchangeably, leads to higher sales revenues. The retail company may take this practice, if proven successful, and implement it across multiple stores and regions, in order to increase sales throughout.

Regardless of where the solution is pulled from, properly managing these tasks is just as important, if not more important than identifying what the tasks are. Adequate task management can be achieved through strict accountability and transparency within the retail organization. Having a set of solutions is of no help if they are not acted on, and constantly evaluated and adjusted on a daily basis.  The tasks themselves should be simple, straightforward, ordinary duties that the employees will have no problem executing. With daily management of the tasks, however, a retailer can gradually boost revenue, and operate with excellence in the ordinary.

Profit amplification is a process that can not only identify the patterns of waste, fraud, damage, out of stock prevention, on-shelf availability, etc. that are causing lost revenue, but it is also able to utilize 16 years of retail experience in order to return intelligent, prioritized actions for growing revenue, therefore increasing profit, throughout the entire retail organization.

This is not meant to call attention to Williams-Sonoma, but should serve as a warning to the rest of the industry. Just a few years ago the headline was Best Buy and the value was millions. In another instance, it was Toys”R”Us in the UK who was victimized, and again, millions. The issue is not the monetary value lost, which is substantial, but how the actions were carried out.  More importantly, whether behaviors were malicious or non-malicious, these events still occur every day and do not get identified.

In each instance the total loss may have been significant, however, if you break it down the total was actually comprised of a lot of smaller losses which were accrued over a period of time.  Stopping future instances that contributed to the total loss may seem like small victories, but they add up to a lot of money. It’s the ability to identify the pattern, regardless of the amount and guaranteeing positive results, that will ensure efficient and effective use of time.

Retailers need a solution that does not get distracted and is not influenced by our everyday activity, but delivers pointed guidance.  In order to pursue the guidance, there needs to be a level of trust which can only be accomplished through “true positive” identification of issues.  With trust in the guidance, the solution needs to automatically flag areas where action must be taken and provide recommended best practices.  Finally, it needs to provide easy tasks that can be done everyday and delivers sustainable excellence.

Profit amplification is a process that can be used to identify value chain margin leakage, shrink, waste, process errors, and operational risks and damages — returning intelligent, prioritized actions for increasing profit throughout the entire retail organization and provide excellence in the ordinary.

No one ever wants to have an understocked inventory, as that can quickly lead to OOS issues and limited on-shelf availability (OSA), which would result in lost sales. Therefore, it is not uncommon for many retailers to allow for some level of overstocked inventory compared to the sales forecast. For example, if my forecast says I will sell 100 units, am I going to order exactly 100 units? No – I am much more likely to order an amount above my sales forecast, to allow for a “safety stock” in case we are able to achieve sales beyond the forecast amount.

But how much safety stock will I order? How much is too much? Unfortunately there is no exact answer for this, and allowing for too large of a buffer zone between forecast sales and extra inventory has negative consequences. Having low OSA that can lead to OOS problems has a direct negative effect on customers and their relationship with the retailer, which can indirectly lead to lower future sales. Yet having too much stock will lead directly to leaked profit and lower sales revenues.

The manner in which profit is lost with overstocked products depends on the type of retailer and products sold, but in any matter, the end result is lower margin and sales. In the case of a grocer, for example, there may be a pattern at the POS with mistakenly entered SKUs of different kinds of apples, which would lead to inventory distortions. With the inventory at an inaccurate level, the grocer may place an order for 50% more McIntosh apples then are actually needed. The extra apples in stock that are not sold will quickly expire and turn to waste. Perishable products can only be held in stock for so long, and when they are not sold, that equates directly to lost revenues due to overstocking an item.

Products don’t have to be perishable to be effected by the problem of overstocking. In an apparel retailer, they might order a massive amount of sweatshirts due to the belief that they are “in style” at the time. Yet when they just as quickly go out of style, the product suddenly becomes obsolete and almost impossible to sell. The product will either lose sales when it is marked-down in an attempt to get some revenue out of it, or the sale will be completely lost to damage when no one wants to buy the sweatshirt at all.

Profit amplification is an innovative solution to this problem of overstocking, and inventory distortion in general, where patterns of wrong behavior and non-compliance are identified and analyzed in order to turn these trends into profit and growth opportunities. This fast and easy to deploy solution can identify trends that lead to overstock issues, like process errors at the POS or limited inventory visibility through the supply chain. Teams are then equipped with specific action plans to correct the inventory related issues with a prioritized list. Profit amplification solutions will enable the retailer to accurately assess real inventory levels, and greatly lower distortion, which should keep overstock levels at an appropriate level that allows for sale goals to be achieved and profit to be leveraged.

For example, let’s assume a retailer with an amazingly accurate supply chain system is able to forecast at 95% accuracy and allocate with an even greater 99% accuracy. However, because the real on hand inventory is not accurately depicted through the numbers, for whatever reason, you find yourself with inventory distortion. This distortion, in turn, gives you incorrect signals of on hand inventory at every store and the true demand signals.

The distortion is being magnified through the bullwhip effect as you move through the supply chain. Retailers have many touch-points throughout the supply chain, from procurement to receipt at the warehouse, to ship to the DC, all the way through until it reaches the store and eventually being consumed by the consumer. Each touch-point provides the chance to magnify inaccuracies, so even if you begin with 95% accuracy, taking 95% of 95% of 95%, all the way down the chain, you will end up with a much lower overall accuracy, closer to 80%.

This new number of 80% accuracy is not nearly as comforting as 95%, and if you take this number and multiply by the amount of SKUs, by the number of stores, and the quantity of products a retailer actually has, you find that it will contribute dramatically to the OOS problem that we have in retail. Without proper measurements of inventory accuracy, OOS is inevitable.

Inventory distortion is becoming even bigger and more complex due to issues with cashiers at the point-of-sale (POS). Using incorrect UPCs is surprisingly common, and occurs when the UPC is not properly represented on the item, or even not in the catalogue at all, therefore forcing the cashier to enter the code manually. Human error can occur in several ways, from entering the wrong code completely, to ringing two similar (yet different) items as two of the same item, like two different flavored packs of gum. These errors can lead to over-inventory of some items, and under-inventory of others; either way contributing to the overall distortion of inventory.

As if the distortion isn’t enough at this point, we must think, how many times are we actually opening the boxes from vendors to ensure accurate orders? In retail we are always trying to minimize the administrative touch-points to increase efficiency, but we might be distorting inventory if we eliminate too many. We don’t want to open every single box that is received, but we also want to keep the vendor honest.

What if we receive a carton containing 12 bottles of vodka, and we don’t open it in an attempt to minimize touch-points, but it actually has 11 bottles? The system thinks we have 12 bottles in stock, yet we only have 11, so the distortion has begun before we can even stock the shelves. Reducing touch-points will reduce SG&A, but will create a much higher risk of missing items, leading to higher inventory distortion.

The above factors (distortions from the vendor to DC and noncompliance at the POS) coupled with day to day unregistered shrink and waste due to fraud and noncompliance, contribute wholly to the overall inventory distortion, in turn contributing to higher OOS at the shelf level and therefore impacting revenue and growth.

A new approach to solve the OOS problem is with profit amplification, where patterns of wrong behavior and non-compliance are identified and analyzed in order to turn these trends into profit and growth opportunities. This fast and easy to deploy solution can increase shelf availability by identifying which product(s) should have been sold, but cannot or were not due to it not being on the shelf. After identifying these trends, the solution provides teams with prioritized action plans to correct the inventory issues. Profit amplification solutions will enable the retailer to accurately assess real inventory levels, and greatly lower distortion and the OOS problem it leads to by improving visibility and management. The great news is that the solution is allowing retailers to reduce touch points, reduce total SG&A throughout the supply chain, while maintaining vendor and internal compliance through the pattern recognition and statistical based approach, which maintain inventory accuracy, grow revenue and profit continuously over time.

So even with the “best” supply chain systems, if you cannot assess inventory with some sort of accuracy, you will end up with OOS, whether you like it or not.

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So, how can retailers continue to drive down waste and energy consumption, yet still meet or exceed the goals they have committed to?

By monitoring total waste.  Retailers need the ability see where total waste (comprising damages, returns logistics damaged & poor quality goods for instance) is occurring across the retail value chain, where it is likely to occur, and the root cause.  More importantly, retail needs a platform which empowers and engages everyone in the business to make a real contribution to driving down waste, adding money to the bottom line and contributing to their businesses competitive advantage.

Profit amplification offers all segments of the retail industry a real opportunity to meet and exceed those objectives. Retailers looking to “go green”, will find that they will inherently increase profits by reducing their waste and energy usage, and increasing the sustainability and efficiency of their business practices. In fact, retailers who have implemented profit amplification, with or without sustainable intentions, found that they are experiencing similar mirrored results.

Profit amplification is often used to identify proper inventory and stock control. As an example, overstocked freezers are often identified, mostly caused by non-compliance with proper stocking methods. The more products in the freezer, the more energy needed to keep the products at the appropriate temperature. The overloaded inventory may become so burdensome on the freezer that it can no longer maintain the necessary temperature, causing the perishable goods to prematurely expire and become waste, leaking even more profit. If proper stocking procedures are followed, this will decrease this waste, and greatly decrease energy consumption. With compliance, sustainability and profit amplification are both achieved.  The key is to identify the overstocking quickly to reduce the environmental impact.

Profit amplification has allowed retailers to grow and realise profit opportunities within their value chain, simply by identifying areas with excess shrink and waste and applying their best-practices solutions. Eliminating waste, making your business more sustainable and adding that money to the bottom line sounds like a marriage made in heaven.

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Reorganizing involves trying to build profit and growth through several ways, either by closing poorly performing stores, focusing on stores that are doing well, or focusing on competitive advantages like pricing, branding, consumer loyalty programs, optimize assortment, minimizing out of stock, etc. Again, because of the reshuffle, they have more focus, so performance is better the next quarters.

But as you can see, reorganizing involves many moving parts, including moving people around (likely firing and/or hiring), possible store closures, and several possible changes that could be made to the brand itself. All these changes can cause ripple effects throughout the business, effects that may not be reflected in the initial increase in quarterly profits. For example, if the reorganization includes terminating a good leader, like a certain executive, this often coincides with other good workers leaving with him. When you increase and actually create attrition, as a side product, it is often the better people leaving instead of the bad.

So how about implementing a solution that would make reorganizations a thing of the past? Why not achieve the same end goal of growth and profit amplification, but without the unnecessary side effects? Instead of reshuffling and reorganizing, retailers can simply continue to focus on where the profit leaks on a day-to-day basis, and bring profitability back to the bottom line.

By opening a line of communication with everyone involved, from store employees, to regional managers, executives, all the way to the top; retailers can identify the areas where they are losing profit, and assign the tasks necessary to bring profit back. Once in place, profit leakages will slow to a stop, allowing retailers to leverage the profit increase by gradually building on areas like merchandising and building better quality stores, ultimately increasing the important same-store sales index.

With the large amount of effort it takes to undertake a reorganization, and the negative long term effects it can have on a retailer, it only makes sense to look for another solution. That solution lies in focusing efforts on day-to-day profit and growth opportunities, which in the end will not only give the retailer the increase in profit they were looking for, but at a much lower short and long term cost.

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BJ’s Wholesale Club Inc. was recently acquired by a pair of private equity firms. These investors saw the potential for growth, because consumers have been flocking to these large, wholesale stores in order to get more “bang” for their buck during the economic downturn.

In the case of BJ’s and other popular retail companies, the firm is investing in the well-known brand name that has already been established through past financial success. Firms look for retailers with this past success and large market share, as this displays the potential for higher revenue, rate of return, and significant cash flows. In other words, the relatively low risk, high return potential with retail companies is very attractive to these private equity firms.

Another example is Whole Foods Market.  Leonard Green & Partners made a $425 million investment in the company when the stock was at $14.50 a share.  Back in November 2011 they sold 1.18 million shares for over $68 a share, netting themselves $81 million. The investors still maintain another 14.5 million shares, which is is currently valued at more then double their original investment.

One of the reasons for the relative low risk and potential to amplify profits is the fact that retail companies tend to have a relatively simple, straight-forward business model. There isn’t some proprietary, highly technical product where the intellectual knowledge base resides with just a few people. The equity firms have experts who are trained and experienced in implementing measures to improve returns in retail companies; often former CEOs or presidents of public retail companies.

Although looking for rapid development, private equity firms tend to be much more patient than their public counterparts, focusing on long-term growth and shareholder value, as opposed to short-term measures like quarterly earnings that are held so high in the public mindset. Since they are not as narrowly focused on quarterly earnings, it allows the companies to perform necessary measures that have the chance for negative short-term effects, yet put the company in the best standing for the long run.

Retailers offer an exceptional investment opportunity for private equity firms, while at the same time, the retail companies themselves are entering into a situation with great potential for profit growth and success.

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Many of them stopped reporting because it was “causing too much volatility in stock prices.” (I guess we should thank them all for reducing the volatility in the stock market.) Others claimed it was “causing management to focus too much on the short term and not enough on longer term initiatives.” Whew. Thank goodness they nipped that problem in the bud, too.

To really grasp how insignificant same-store sales figures have become, let’s consider for a moment the companies who no longer report. Walmart, the largest retailer in the country, representing half of all retail sales, stopped reporting in early 2009, after the news got so bad month after month that someone in Bentonville finally figured out they were important enough to not have to share it anymore. Quickly following Walmart’s lead were Sears, most of the regional discounters, and the dollar stores.

Stealth giant Amazon never did report same-store sales. I guess it’s because they don’t have stores. But they certainly do a lot of sales – sales that used to be done by stores.

Only one warehouse club, Costco, still reports on a monthly basis. Big box retailers Best Buy and Bed Bath and Beyond do not. In the women’s specialty apparel sector, we know how Gap, Limited Brands, and Wet Seal are doing, and that’s about it. About the other major players, like Ann Taylor, Talbots, Chicos, Express, Urban Outfitters, Dress Barn, Charlotte Russe, Charming Shoppes, Christopher & Banks, New York & Co. – we learn nothing.

And it’s not just the women’s merchants who are remaining mum. There’s no news from Men’s Wearhouse, Joseph A. Banks, or Casual Male, either. Throw in Children’s Place, Abercrombie, American Eagle, American Apparel and Aeropostale to that list while you’re at it. The only teen store still reporting is Kearney, Nebraska-based Buckle, whose monthly performance has been so good for so many years they can hardly contain themselves when the first of the month rolls around.

So what are we left with? The department stores, off-pricers, one discounter (Target) and one luxury store (Saks). Big stores, to be sure, but representing less than a third of retail sales, making it impossible to glean from the data whether the market’s growing or shrinking, or which retailer or channel is gaining share from another.

Complicating the situation even further is the fact that some of the big stores, like Macy’s, Penney and Nordstrom, have started to include their e-commerce sales in same-store sales. (Huh?) With online sales growing by double digits, all this does is introduce even more confusion and insignificance to the measure.

I have therefore concluded that those companies who report monthly same-store sales should just stop. Macy’s, Gap, Target, TJX and friends should just post their comps every quarter like the rest of the market does. At least we’ll have something meaningful to look at, especially considering the profitability figures that come along for the ride. It would also give us all an extra day per month – if not more – to do other things, like focus on longer term initiatives.

Or spend more time watching George Clooney movies.

About Judith Russell

Judith Russell is editor of The Robin Report and ApparelStrategist.com.

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The theme of the NRF Big Show 2012 was “how retailers and innovators are changing, stretching, breaking and reshaping the conventional rules of the game.”  While the world’s economy is still recovering, innovation in retail is on the rise, using ingenuity and technology to meet the changing needs and desires of customers.

Industry standard-bearers such as IBM and Microsoft talked about “understanding the consumer,” and the customer experience.  Oracle was focused on the challenges of globalization, while SAP discussed how to keep iconic brands modern.

Break out sessions included information on marketing & brand management, digital retailing, the global retail outlook, mobile retailing, and store design.  There were also sessions pertaining to IT, store operations, and supply chain.

Most of the sessions focused on the customer:  how to make the customer experience better, pricing strategies to attract customers and how to connect with the omni-channel customers in the digital age.  These were all great topics of discussion for an industry that makes its money from the consumer’s purchase.

During the expo, companies showed off their technological innovations.  Digital wallets were one of the most popular advancements in consumer payment technology.  The Google wallet holds all your credit card and coupons on your phone, negating the need to carry a bulky billfold.  The Paypal mobile wallet allows you to track your day-to-day spending, which includes your credit cards, debit cards, coupons and even airline miles.  Prysm demonstrated their digital mannequin, which will create an interactive merchandise display.

However, even though the focus of NRF was consumer based, the attendance at the Profitect booth showed more than ever before that retailers are seeking solutions to increase growth and profits.  As demonstrated at NRF, profit amplification allows retailers to increase their profits and grow without having to increase prices, open new stores or decrease operational costs, which have always been the go-to ways of increasing profits.

The growth and profit increase is accomplished by identifying areas of profit leakage and stopping the occurrences.  The definition of profit leakage with profit amplification is different than the standard retail definition.  When asked about loss, most retailers will speak of shrink and other malicious activities, both internal and external.  However, total loss actually includes more than just shrink.  It includes non malicious activities, waste, damage and margin erosion, which are all areas where profits can leak and revenues can be lost every day across the value chain.

As witnessed by the attendees at this years NRF Big Show, the use of profit amplification solutions will allow retailers to identify areas of leakage and best practices to recommend corrective actions and prioritize them based on profitability.  More importantly, it will allow retailers to focus on what they do best, service the customer and sell merchandise.

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The first step is to ask how utilizing a profit amplification solution can help their business grow?

Profit amplification will allow retailers to do more with their current resources, allowing them to understand where to focus and easily find valuable opportunities.

By using the profit amplification solution to analyse the data they already have, anomalous patterns are identified, not easily seen in spreadsheets. While traditional analysis methods can yield improvements, they often fail to identify all the anomalies. It’s common for profit amplification solutions to identify new patterns to pinpoint areas of high shrink, waste, damage or margin erosion.  Correcting these issues can quickly lead to increased profits and growth opportunities continuously.

Increasing efficiency and effectiveness is done by using a broad range of data to pinpoint opportunities. Once the opportunities are identified the automated profit amplification system ranks and prioritizes them based on the impact they have on profitability growth. Then, best practice solutions are used to correct the inefficiency and grow profits, while maintaining the retailer’s culture on how to solve these opportunities and turn them into growth.

By adding profit amplification actions to existing processes retailers will be able to find anomalies in their business. They should be able to check if these anomalies have a direct impact on shrink, damage, wasted, and margin erosion; and then identify the best practices in the organization that will have direct impact on profit improvement. When non-compliance is identified, these best practices must be a top priority when integrated into audits, training and general awareness activities.

Improving these key areas will build process capabilities for sustainable performance improvement and profit growth. Profit amplification is the solution that enables retailers to best utilize their data, people and process to increase growth and improve profits.

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1.       Increase sales opportunities
2.       Reduce shrink
3.       Improve customer service
4.       Lower expenses
5.       Continuously train staff

Separately, these 5 tasks can seem daunting, but by using the profit amplification solution and improving retail operational excellence (ROX) you can accomplish all of these resolutions at once.

The profit amplification solution uses pattern seeking software to identify anomalies within a company’s data.  These patterns can be used to identify such things as areas of high shrink or low sales.  It can also analyse enterprise wide inventory levels to ensure that the correct merchandise is in each store, and utilizes other data to ensure the efficient allocation of staff and resources.

When these patterns are recognized they are ranked in order of profitability growth opportunity and then actionable tasks are assigned using best practice solutions.  These solutions direct management and staff on the proper way to correct the identified issues.

Identifying areas of high shrink is half the battle.  The next step is figuring out how to reduce it.  The profit amplification solution will provide recommended actions to prevent further losses.

Increasing sales opportunities is sometimes reliant on ensuring that the right inventory is in the right place at the right time.  Profit amplification analyzes a company’s inventory data and can send notifications about inadequate or inconsistent inventory levels in a store. By ensuring the proper allocation of merchandise you can improve sales and customer service.

Lowering expenses happens through the identification of the most efficient allocation of personnel and equipment.  If sales are higher in women’s apparel then men’s, then one can assume more staff should be allocated there.  The profit amplification solution analyses the sales figures and provides that recommendation, so less time is spent on reading reports and more time is spent helping the customer.

The pattern recognition aspect of profit amplification also allows for the identification of staff errors and allows for identification of intent.  If the staff member’s intent was malicious then they can be terminated, but if there was no malicious intent it could simply be a matter of retraining.

One simple piece of technology and process improvement allows you to tackle the 5 biggest retail resolutions of the year.  Ain’t New Year’s grand.  Happy New Year!!

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Grocers profitability is affected even more by secondary factors, typically related to the complexity of the vertical: Perishables and short shelf life—from a daily newspaper to crispy lettuce; relatively high level of DSD—ranging from bulky products to local fresh; the unique costs of operations—high utility bills of refrigerated displays, labor intensive replenishment and more. Service departments such as bakery, butchery, and deli are adding sales and customer traction yet they have so many inherent threats to profitability.

Grocers are getting better and better at managing the many aspects of their own businesses, but this is a growing challenge as grocers striving to match the exponential rise in customers’ sophistication. A couple of years ago, a targeted price comparison analysis would require a dedicated team of surveyors and analysts. Currently it can be done with one finger stroke on a smartphone. Can be done? I should have said it is being done, millions of times a day, by most of the shopping public.

Grocers have grown in sophistication which is reflected in the way they are handling costs and prices. Private label, white label, demand forecasting, price optimization, promotion management and other such have transformed from buzz words to a daily reality.

However, one item, the most crucial one, the most obvious one, had been left untreated. PROFITABILITY. Retailers see profit as the outcome of their activities, and assume that if well managed and well controlled, profits will be there for them. Not high, not much, but well within industry standards and a bit above the benchmark. However, with Grocers, this comfort zone of industry standards is so narrow and so low, that any fluctuation can throw them below the break-even point.

To validate my point, Grocers should just ask themselves “who in my company serves as Chief Profit Officer?” and even more technically “What systems have we recently deployed to pinpoint our unexploited profit opportunities and to urge us to materialize these?”

These questions lead to the challenges and opportunities for Grocery Retailers in 2012 and Beyond – Not to wait for a coincidental discovery of some profit opportunities. Not to read about some of these in a retail magazine review of someone else’s success and ask yourself “how come I didn’t think of it” , but rather to become systemically proactive in all that’s related to maximizing the untapped profit opportunities that exist in each Grocery business.

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Adrian Beck, published author and Head of the Department of Criminology at the University of Leicester, UK, noted that the term ‘shrinkage’ is a highly politicized term, and is completely compartmentalized. According to Beck, “Shrink is usually thought of as a malicious problem, when the reality is that 70% of losses within a retail organization are non-malicious. What we need to understand is the notion of product value management — how to ensure that retailers maximize the value of a product or a category as it goes through the entire supply chain. It is not just about theft or damage, but about understanding where retailers lose value in their products.”

More importantly, several studies have shown that shrink is only attributable to 30%. The numbers generally point to employee theft at a rate of more than eight times higher than the average amount stolen by a shoplifter. When damage, waste and margin erosion are added in, a full picture can be realized. Retailers must remember that there is more to loss than shrink. Understanding the big picture of total loss can enable retailers to really see the truth behind profit loss – and it’s not just the “five finger discount.”

When retailers focus their efforts on theft it’s not uncommon for the criminal to change tactics and create a new method of loss. Retailers that are able to identify and fix operational deficiencies will find a long term improvement that is ongoing, fixing another leak that will stay plugged.

By monitoring the entire value chain to see where anomalies occur from loss, damage, waste, and margin erosion, retailers can make informed decisions about how to implement change and create opportunities for profit amplification. Retailers are empowered to mitigate many of leading causes of loss by understanding the data present in their systems. Identifying areas that can hide loss downstream or focusing on reverse logistics to understand waste problems, retailers can learn to see the full picture of shrink and implement intelligent programs to solve the biggest issues will see elevated profit amplification over time.

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