Retail ROI: Fuel Costs Hurt, Training Costs Help
Look for employee training and inventory and supply management systems to appear high on corporate wish lists this holiday season: These two investments deliver the highest returns, according to a survey of retailers.
Another 12% said their advertising and marketing programs offered the best ROI, while 10% favored pricing optimization solutions. Loss prevention systems, space planning, e-commerce sites and in-store self-service kiosks were cited by 6% or fewer of all retailers.
The push for investments that will deliver high returns comes in the face of rising fuel and transportation costs, which are seen as eating away December margins, according to survey respondents.
The squeeze in margins comes amid increased top-level sales expectations. More than half of all respondents anticipated sales growth of at least 5%, while another 39% indicated sales would be flat. But half also said that increases in gas would also slow customers’ willingness to go out and shop, in addition to boosting retailers’ delivery costs.
Adding to their holiday distress, retailers don’t feel they have the latitude to offset these increased costs via higher prices. In recent years, consumers have pressed for early and deep markdowns. Thanks to comparative shopping abilities via the Internet, marketers have been obliged to comply. As a result, only 12% said their holiday 2006 margins would increase from 2005, while 27% indicated margins would drop.
These aren’t the only headaches they are facing this holiday season. Nearly half wanted to forecast product demand within individual locations correctly, thus avoiding having to shuttle goods from store to store and wasting fuel. Another 38% were concerned about making appropriate and timely price markdowns. They looked to analytics that will enable them to price goods so they could attract customers without cutting their own throats.
A similar number sought to manage employee levels through staff optimization analysis, while 13% fretted about insufficient advertising and marketing budgets. Some retailers are investing in a bit of pre-holiday castor oil. More than half have implemented an inventory management system in anticipation of the upcoming December shopping season, while another 41% installed a merchandising planning and optimization platform. And 40% have investigated workforce management systems. The study, which was sponsored by Oracle Corp., was conducted among 186 respondents. Forty-four percent were from national chains, while 19% were from regional chains. Independent retailers made up 23% of the respondents, with the remainder coming from franchisees and “other.” One third generate more than $1 billion in annual revenue, while 5% pull in between $500 million and $1 billion. Another 11% report revenue of between $101 million and $500 million, and 17% said it is between $11 million and $100 million. The remaining 33% generate annual revenue of under $10 million.
