Retail Experiences Series: Now Vs. Future Profitability

April Tomlin

My career has always been anchored in retail; no matter how desperately I try to escape, I always end up back in the fray. Retail, in my very biased opinion, is one of the most challenging industries out there because of the sheer amount of fierce and visible competition in the market, shrinking profits, rising customer expectations, and the need for talent to work 24/7, 365 days a year (because let’s face it, the Internet never sleeps). Retail is also one of the most exciting and rewarding industries for the exact same reasons.

In one of my previous roles, I led a merchandising team through aggressive growth initiatives that completely changed the way the organization conducted business in previous decades. With growth came new ownership and new perspectives on how business should be conducted. One of the first asks was for us to stop doing business with brands and partners that were perceived to be unprofitable. On the surface, this makes sense. Continuing to do business with brands that can’t protect their pricing, as marketing and operating costs rise, seems moronic. So, we did what was asked and greatly reduced our assortment size by ceasing selling the products of hundreds of low-revenue and low-profit brands.

Fast forward to Q4 of that year… as always, the pressure was immense to hit our top-line and profit budget but, unlike the previous year, we continuously missed expectations. As we dug in, what we found is that the brands and products we eliminated were responsible for driving a significant enough amount of traffic in total that the loss in traffic was impacting the volume of our very profitable core business.

Lessons learned

Unfortunately, in retail, there are no mulligans, no re-dos. Competitors just swoop in, take your lunch money, and make you wear a dunce hat. The consequences of shrinking the assortment were a missed Q4 budget, smaller profits, and millions of lost customers.

A tunnel-vision approach to profitability causes decisions to be made that are expected to protect profit, but sometimes cause larger, negative downstream effects. Bain & Company addressed this concept in Grocery Retailing, Reimagined. “Understand what your customers want and why you have earned their loyalty, and do not abandon that as you define your e-commerce model. In fact, double down on it.”

Retail organizations are constantly presented with difficult decisions like this. In hopes that you will avoid making a serious mistake like the one I described, here are some suggestions:

  • Keep your customers at the forefront of your decision-making ALWAYS.
  • Do exhaustive analysis and look at the data from all possible angles.
  • Complete and present forecasting exercises based on best-case, worst-case scenarios so leadership teams are informed.
  • Push back in an informed and articulate matter, given it aligns with what is best for your customers and the organization.
  • Innovate and fail forward (quickly); this concept is critical in remaining competitive in retail today.

How can you set up your organization for success and be sure you’re providing products and solutions customers can trust? Visit us at NRF: Retail’s Big Show, SAP Retail to learn more about experiences you can trust.

April Tomlin

About April Tomlin

April Tomlin is Global Head of Retail, CX Advisory for SAP Customer Experience. April is a proven business executive with over a decade of omnichannel and pure-play retail experience. In early 2018, April joined SAP in a new role that leverages her background and expertise to provide strategic and tactical-level business support to the Customer Experience ecosystem. Prior to this, April led digital teams in achieving incremental growth through innovative merchandising, customer experience and marketing initiatives.