It is not uncommon for success to be shared in retail when times are good, especially when profitability has increased for the organization. However, when profitability drops, fingers are always pointing, but who gets the blame? When trying to understand who owns the problem and ultimately the blame, the answer is usually “no one.”
Over the last couple of years, when meeting with CEOs, CFOs, CIOs and various operational managers, I was shocked to discover that in each of their organizations there was no one department or individual that owned profitability. Retailers are able to collaborate when it comes to managing topline growth, merchandising and even supply chain efficiency. But no one is responsible when it comes to the bottom line.
While the industry is constantly changing, one thing remains consistent: retailers focus on making money. The industry is always seeking new ways to make money, serve different service lines, increase assortments, or optimize and localize for local markets. While they’ve put systems in place to manage across the different silos of their organization, there is nothing that manages shrink, waste, damage, and margin loss.
It’s important to note that when a retailer evaluates shrink, that it can come from a number of different areas. More importantly, it’s not all about theft and bad intention, but can be the result of noncompliance, or process failure. While “shrink” is traditionally owned by loss prevention, they don’t own the different processes that may lead to increased shrink. It’s often difficult for them to affect the change necessary to reduce these types of inefficiencies. However, once a process or compliance issue is found, the yield over time is higher than common strategy of chasing thieves.
Traditionally, retailers have assigned someone in the loss prevention department to manage shrink — but what about damage, waste and margin erosion? There is no one function in retail that owns all of these areas. Innovative retailers are finding a way to increase their focus on profitability. This assignment is usually managed by someone in the financial strategies sector of the enterprise. However, some have placed the task of managing profitability in the operational arena. Either way, there becomes one area of the company that is able to manage and track profitability levels.
As retailers look for new ways to improve profits in this struggling economy, they should start looking inward and try to identify if there is an area of their company that is responsible for profitability. If none exists it may be time to stop pointing fingers and begin collaborating to identify the best candidate for this responsibility. After all, retailers can leverage the increase in profits to fund new same store sale increase initiatives. While top line growth should continue to be a focus, the retail graveyard is full of companies like Linens ‘n Things, Circuit City and Montgomery Ward, who overlooked the importance of profits.
I recently participated in a roundtable discussion with various retail thought leaders, discussing the topic of profitability in the retail industry. Topics included who in the organization owns profitability, what profitability measurements should be important to retailers, and how best to improve profitability. Click here to view a short video that includes comments from:
Bill Copacino, President and CEO, Copacino Advisory Services;
John Deane, CIO, Abercrombie & Fitch;
Nicholas P. Delany, President, VTech Communications Inc.;
Thomas Matthews, Former Chief Ethics and Compliance Officer, Saks Fifth Avenue; and
Kathy Persian, Group Vice President Merchandising and Retail Systems, Supervalu.
Guy Yehiav is the CEO of Profitect. Prior to Profitect, Yehiav served as Vice President Sales & Strategy for Oracle’s Value Chain Planning Solutions where he was responsible for sales, strategy and customer success for clients such as Kodak, Apple, PepsiCo, Welch’s, Sara Lee, Tootsie Roll, CarQuest, 20th Century Fox, VTech, Johnson and Johnson, and Timex. Yehiav also was founder of Demantra US, a global provider of demand-driven planning solutions, which was acquired by Oracle in 2006. Previously, he directed the Global Professional Service Group where he was in charge of creating methodologies and infrastructure through value chain transformations that enabled demand driven and seamless operations for fortune 1000 companies.