Store Execution More Critical Than Ever

As retailers try to predict the future and adjust strategy, there is a lot of focus on the upcoming 2008 holiday season. What is the right mix of products, personnel and market presence to turn a good profit? Right now, there is a lot of action in the market as retailers make those adjustments: What is so often overlooked, however, is the critical impact that improved store execution can have on financial results.

No matter where your stores are, profitability can be increased by taking a good look at execution. How do we know this? The numbers tell a revealing story.

Sales last November and December rose only 3 percent, the slowest rate of growth since 2002, according to the National Retail Federation. Much has been written about factors like toy recalls, consumer worries about economic trends — even wintry weather. But looking deeper, what we have found is that many retailers still don’t fully realize the impact execution management has on their ability to get more sales out of their stores.

Anyone with store oversight knows that major new merchandising tasks are not executed on time in all stores, and levels of compliance vary, too. Yet few executives have quantified how often execution at the store level is missed, how many lost sales occur as a result, and the impact that improved delivery and task tracking can have on sales.

Low-hanging fruit
By researching this execution management gap with some of the biggest retailers in the United States, we can see there is a lot of low-hanging fruit. An excellent example is the 2007 review of a new product introduction conducted at a U.S. retailer with more than 1,000 stores. We would love to believe that all the stores were prepared to support the big launch when the advertising hit the streets; after all, that is one of the pillars of successful retail. But we found a large variance when it came to completing tasks with defined due dates.

The promotion lasted for 28 days, but the date of task completion at stores ranged widely. On the first day of the promotion, only 23 percent of the stores had sales; five days after the start of the promotion, 18 percent of the stores still did not have sales. So, as a consumer, I shrugged off gloomy economic news, researched safe toys and slogged through the snow to get to the store — only to leave empty-handed because the promised goods were not displayed. That can’t be good.

This example shows that retail chains take a tremendous hit on revenues if their stores fail to execute defined tasks for promotions on time. If the stores we studied executed on the target introduction date, estimated sales for the promoted item would have increased 10.23 percent. Our research also shows that when stores do execute on time, they also tend to have a higher quality of execution.

Look at processes
In another recent study, we took a look at three companies that are considered the market leaders in their respective retail areas: Not one of them could achieve an on-time task completion rate higher than 75 percent. We analyzed more than 75,000 tasks that were sent to stores over 30 days for one large specialty retailer; the on-time completion rate was just under 50 percent.

The takeaway seems to be that opportunity exists to improve sales performance by looking at processes. By all appearances, 2008 will be a challenging year, and we need to look in new places to build revenue. In this case, something as simple as having an endcap set up on time at all locations can make or break a weekend for the entire company. Knowing the opportunity exists can be a source of optimism for all retailers.

There is one more key advantage of execution management systems worth mentioning. Because they automate daily tracking of promotions compliance, you get a leading indicator of the success of a sales promotion. In other words, both store managers and regional managers are able to fix a problem before the ads hit.

With all the unexpected external factors that we face, it’s nice to know that better execution is within our power to control.