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4 VECTORS A METHODOLOGY TO GENERATE BIGGER AND BETTER RESULTS IN RETAIL

by Luiz Otavio da Silva Nascimento

After many years with crises and adverse scenarios, having survival as a basic rule, Brazilian retailers are faced with favorable economic times, where even the staid and almost always pessimistic IMF issued last month a forecast placing Brazil as the worlds 5th largest economy in 2032. The new order is to forget recessive paradigms and grow. But how to do this safely? How to give up the old cacoethes? Everyone certainly knows at least a profitable company that has little revenue and also knows other loss-making companies with multi-million sales. The idea in this paper is to adopt a methodology that can help any retailer start the path to achieve higher and better profits. It proposes the integration of best practices in a systemic view that considers the Brazilian reality and favors the management conservatism by recommending that costs be always treated like nails: they must be cut every week! FIRST FOCUS: MANAGEMENT OF MARGINS PER FT2 Retailers expenses tend to be always higher due to the constant increase in taxes, variations in interest rates and exchange rates, combined with increases in utilities (power, water, etc.), taxes and the cost of workforce. So, regardless of the scenario experienced, the exponentiation of competition and value-driven customers, executives should be aware of it and acquire practices that enable them to manage their business by analyzing and continuously seeking to improve the margin per ft, as their stores have areas that tend to be fixed, since it is not possible to expand them indefinitely.

In discussing this, however, the awareness of all is revealed, because they know the strategic importance of this type of management. But for some lacks the will, perseverance, focus, knowledge and speed to change. The present situation in Brazil may be the motivation for change. Valdemar Martins do Amaral, CEO of the ABC Supermarkets chain, parodying William E. Deming, mentioned that: if you cant measure, you cant know. If you cant know, you cant control. If you cant control, you cant improve. Hence, the first step of the methodology proposed is the creation of indicators that enable to measure the performance of each store per ft2, which will also help identify the best practices within the company, besides generating metrics for the proper assessment of the actions that will be originated by the 4 Vectors. THE 4 VECTORS The conceiving of this methodology arose from the finding that the retail market has repetitive events. Upon hearing this statement, many retailers were skeptical. But this skepticism begins to fade when confronted with the reality that we know, for example, when it will be Mother's Day in the year 2050 without checking any calendar. That day, the second largest sales generator in the year, is and always will be the second Sunday in May (in Brazil). Accordingly, if we emphasize the operational side of the retail operation in conjunction with a continuous improvement process, we will have bigger and better results regardless of the strategy adopted and the positioning chosen by the retailer and perceived by customers. DNA FOR EXPANSION Before describing each of these vectors, it is necessary to explain the circles contained in Figure I. The concept is that the retail company is the sum of its stores, and the first circle represents the total market potential of a particular store, which can be calculated by the total population and its purchasing power contained in the point-of- sales area of influence. The next circle, called the Target Audience, is smaller than the previous one (Market Potential), because many companies do not intend to reach all segments. The following circle is the Company's Customers and it is internal to the target audience, since the number of customers, due to achievement, tends to be less than the
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total target audience. And finally, given the inefficiencies that may exist, there is the final circle lower than all the other ones as a graphical representation of current sales made by the company to its active customers. Figure I The 4 Vectors

In order to increase those sales, the company must develop strategies and activities in the direction of each of the 4 Vectors shown: Assortment, Credit, Communication and Store Operations. The understanding and measurement of each of these circles for each of the stores will enable retailers to identify the characteristics of their best stores and, then, by using GIS, they may seek regions with similar characteristics for establishing new branches. This technique could be named DNA for Expansion, since it would help evaluate and establish new sales outlets. BAKERIES Bakeries are a good benchmark. The secret of their success is to offer hot bread every hour. The assortment and the display are done in such a way as to induce the customer to make additional purchases, that is, the customer walks in wishing to spend $
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1.00 in bread rolls and walks out the bakery having spent more than $ 4.00. In other segments of the market, the hot bread rolls consist of providing customers with novelties and promotions, weekly if possible. And this must be communicated to customers at least through the visual merchandising in the inner area and in the windows of the store. ASSORTMENT The first vector is Assortment. Having the right products is one of the keys to success in retail. It underpins everything. Products suited to the lifestyle and habits of the target audience contained in the influence area of the store. Depth and variety, with price ranges that meet all the desired segmentation by considering the existing competitors and market trends. On the other hand, retailers must show their customers that they have dominance in their category of products, as customers every day are getting richer in information and poorer in terms of time. They will prefer to shop where they are most likely to find the desired products. The citation of style of life is due to the use that has been given to describe standard ways of consumption, whether of individuals or particular social groups, sometimes called urban tribes. Figure II The Price Pyramid

The assortment building in relation to the price ranges should consider the Price Pyramid shown in Figure II, where retailers should seek to offer some products at very competitive prices to help them enhance the attractiveness of their business. They should also include some higher quality and higher price products to serve their customers without, however, creating an image of costly retailers. But, most of their products must have medium prices. When making the assortment planning, different products must be treated differently. Basic goods, for example, usually have a long life cycle and suffer fewer markdowns. The risk associated with them is smaller, but the margin is also usually lower. On the other hand, fashion (in the case of clothing retail) or seasonal products (like some household appliances, such as fans, air conditioners, heaters), are like yogurt and have validity, since when the fashion and/or season ends they lose value, which requires markdowns to be made before the end of the season. The risk inherent in such products is high, as well as the margin, requiring better management during the season. Offering novelties is something to be included in planning because the manager of each product line should provide it in advance and ensure the proper flow of such goods. Likewise, he/she should together with the Marketing Department develop a promotional calendar and buy specifically for it. The assortment planning and management is a lifelong learning. It is not an exact science. A good practice is to register the structure adopted for each line and the preparations made for each promotion, and at the end of the month, promotion and season to organize a debate with the managers of each product line to learn and register what went right and what went wrong in each of the lines. Such records must be read again at the beginning of a new planning cycle for purchases for the same month, season and promotion of the following year. The continuity of this procedure and the management coherence will make the entire organization to learn and evolve. CREDIT The second vector is Credit, which gathers all the company's activities in order to capture customers to its credit sales, grant and control credit, activate the use of the credit
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granted, retain the credit sales customers, and do cross-selling, i.e., make the customer buy in several departments of the store. This vector is highly valued by consumers and is where many opportunities for differentiation are. But despite this, many corporations still have a reactive attitude. They expect customers to go to the store to give them credit; they do not have activation strategies or customer retention. Only a small number of companies are experimenting with cross-selling by offering other services and/or products to their credit sales customers. A good practice is to get store managers to use the low-sales days to go visit large companies located in the influence area of their stores to talk with the Human Resources Departments of these companies and offer credit to their employees. Each of these managers should have a monthly quota of credit granting in order to build the future of their store on a daily basis. Another practice is to create a database and track customer purchases frequently to identify those customers who are abandoning the company, and then approach them to find opportunities for improvement. By tracking purchases, the company will know its customers better and may from time to time raise their credit limits. It will also get to know those customers that are not using all their credit and then take actions to increase their use. In short, an ocean of potentialities arises for companies that develop the Credit vector. COMMUNICATION The third vector is Communication, but in a broader sense, which includes advertising, sales promotions and all the point-of-sale merchandising, including the arrangement of products and their respective positioning in the store according to their sales and life cycles. All this taking into account the philosophy of offering hot bread rolls hourly. Whatever the segment or size of the retail company, it can and should plan the moving around of its products and carry out visual merchandising actions. They can, for example, have a weekly practice of changing windows to emphasize the novelties that have arrived and the promotions contained in the promotion calendar.

The marked-down products must be highlighted in their in-store display. If possible, one should try to group them in a same price in order to create a greater impact at the point of sale. The visual merchandising should also aim at making the store didactic for customers, as this will facilitate customers familiarization, help them with their purchases and make them loyal. This is done by using visual programming and pictures. Advertising, that is, the external communication, can be done in several ways. The care to be taken is to have a simple and original message that conveys urgency. Simplicity can be achieved through the advertisement of only one product or a product category or only one price. When trying to advertise multiple products with several different conditions and different prices, one runs the risk of the message not being remembered by any customer. Originality is always welcome and helps fix the message in customers' minds. Whereas urgency will cause a more immediate reaction of customers because they know that, if they do not go to the store by a certain date, they will miss such offer. The retailers must work with their agencies, create metrics to evaluate the effectiveness of advertising and, accordingly, develop their organizational learning. Something to stress with regard to communication is the existence of new media such as cell phones and the internet (social networking). It is worth mentioning that now the largest media company in the world is not a conglomerate linked to television, newspapers or magazines. It is Google, a digital media company. Learning how to master these new means, which are completely open borders and lands still without owners, is a great opportunity for all retailers. STORE OPERATIONS The fourth and last vector, Store Operations, may be subdivided into four groups of processes, namely (Figure III) credit sales operation, products, people and local actions.

Figure III Store Operation

The credit sales operation consists of the activities in the store that support the whole credit process: capture, activation, retention, cross-selling, collection and controls. The portion related to product covers: receipt, storage, supply of the sales area, visual merchandising, product movement according to its type and sales cycle, by type of store, markdowns, losses, transfers and controls. With regard to people, it includes: staff definition, daily, weekly and monthly assignments, routine management, ongoing training, employee satisfaction survey, quality and controls. Concerning local actions, we can list: local marketing analysis, local communication, local relationship, customer service, customer satisfaction survey and controls. ALIGNMENT The 4 Vectors should be aligned with the retail companys Marketing Mix, shown in Figure IV, i.e., they are influenced by an axis where the 6 P's orbit around: price, product, promotion, point of sale, provided services and people. When compared to manufacturing companies, the retail Marketing Mix, which defines its positioning, contains two additional P's, since both relate to differential features of the segment. The first P

refers to the store People that accounts for the customer service. The second P is the provided services, which can add value. Figure IV Alignment of the 4 Vectors with the Marketing Mix

An example of alignment would be the case of a retailer that positions itself with low prices every day. In order to keep its position, it may not offer additional services to customers. The consistency of these vectors in relation to the marketing mix and its interrelationship can be seen in Figure V.

Figure V Consistency of the 4 Vectors with the Marketing Mix

TRANSFORMATION The idea presented here stems from the new paradigms of work which, jointly or separately, are providing a number of opportunities for improvement and creation of competitive advantage for the Brazilian retail industry. Its deployment, however, depends on the companys leader. This leader, in turn, has only two functions: getting results through happy people and building the companys future without, however, forgetting that tomorrow will not exist if his/her company does not have lunch every day, that is, sell every day and achieve its short-term goals. In this sense, the methodology presented here has helped several retailers transform for the better the reality of their business. But, just like any knowledge, it will only have usefulness if applied already. The postponement of actions is a form of
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complacency and turns executives into bad-result justifiers. The current scenario is changing paradigms, pushing dinosaurs like the ones existing in Detroit to the corporate limbo, for now the winners of the battle for the market will not be the big and strong companies, but the creative and fast ones. Enjoy the idea presented here and have good sales!

Luiz Otavio da Silva Nascimento. Master in Business Administration (UFRGS - Brazil), specialization in Marketing (FGV - Brazil) and General Management (Emerging Leader Program - Darden Business School of the University of Virginia USA, Entrepreneurship - Babson College, Boston MA USA and Lcole des Hautes Etudes Commerciales HEC of Paris - France). He has a 25 year professional experience in management retail and consumer good companies, like Perrier, Owens-Illinois, Lojas Renner and Diadora. Currently, he is consultant and counselor. Author of the books Gestor Eficaz prticas para se destacar num ambiente empresarial competitive (Effective Manager practices to be succeeded in a competitive business environment), xodo da Viso Ao Uma Proposta para o Varejo Brasileiro (Exodus From Vision to Action A Proposal for the Brazilian Retailing Market) and co-author of the book Administrao de Empresas Comerciais (Administration of Commercial Companies). Professor of MBA courses at Laureate Universities in Brazil (Anhembi-Morumbi and Business School So Paulo).

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