By Tristan Rogers, CEO, Concrete.
"To completely misquote the late Douglas Adams, "retail is big, really, really big." And what that translates to in monetary terms is an expensive disaster waiting to happen.
Retail seems like a pretty crazy business model, when you think about it. Designing, manufacturing, shipping, stocking, presenting, marketing and selling consumer goods in a high footfall environment, paying rent, business rates, wages and utilities, all in the hope that at 09:00 in the morning, someone might wander by, enter your store and possibly buy something.. And yet retail is really, really big, so we know it works. Sort of.
Black Friday, like any other promotional event, is designed to woo consumers into stores for a deal that's too good to miss. And the increased footfall, having been driven by either a specific promotion or just the general promise of discounted product, is seen as the first step towards selling more stuff to even more people. But of course by discounting, the gross margin of that product is now reduced and, proportionately, the net margin could well disappear when faced with the huge overhead that retailers carry in their business models.
So what can be done?
The store environment is where the battle for survival is won or lost. McKinsey's recent report shows that in a maturing retail environment, luxury ecommerce could be topping out at between 15-18% of total revenues. This means that up to 85% of retail revenue will still be coming from the store environment, so it is critical that in-store execution of a brand's proposition is done to the best of its ability.
Yet today, it is still common practice for retail brands to communicate with a store through a mish-mash of manual processes. This one-way approach to communication ignores the needs and circumstances of a store's individual requirements. It is common for a retail head office to have no idea on whether specific communications and tasks have actually been carried out, let alone how well they have been executed. When you then think of the number of stores being communicated with in this way, the problem is huge. If the store is a battlefield, the troops are seriously ill-equipped.
Are discounts necessary?
Think of it another way. If a retail brand could deliver 100% operational control and visibility into its store network, could it generate a 1% uplift in store revenue? I've yet to meet a retail executive who doesn't think so. When you think that many retail brands are struggling to make more than 5% margin, that 1% is meaningful.
So Black Friday can't just be about discounts. It needs to be underpinned by brilliant operational execution, from planning through to task management and education delivery into store, which in turn drives brilliant customer service and increased basket value. A retail brand should never be reliant on discounts. It should only use them tactically to clear old stock or draw footfall to lead to other full price purchases. Black Friday is no exception.
Author: Tristan Rogers is the CEO of Concrete, a store communications platform for brands (with clients such as J Crew, Kate Spade, Gap, Tesco F&F, Vans and Marks & Spencer).