Amazon's CFO has suggested that the upcoming peak season could be won through discounts. Brian Olsavsky said "We still see customers remaining cautious about price, trading down where they can and seeking out deals". And consistent with the trend of recent years, many retailers have already started their Black Friday promotions as the ongoing trend of extending BF/CM's duration continues.
However, as with all price wars and competitive markets, the proof is in the bottom line. It's not hard to offer deep discounts to "win" the market and drive revenues up - but it is also easy to get carried away and rapidly erode the margin on specific lines or categories. Even more so, when you factor in all cost contributions - from acquisition costs to ops costs and many other overheads.
Yet, the majority of conversations that will occur over this peak period are probably still grounded in sales and revenue data - so it's natural that people think to focus primarily on this metric. But this can present a nasty surprise if we get it wrong.
It's harder and more sensitive to understand the profit performance instead of sales. However, analysing and clarifying where and how the various costs are applied at a line and item level is an essential part of tackling profitability. But, as I suggest, this can be hard and complicated work and often it feels like it can be left for another day. And too often, that's what happens.
Analysing your various factors and the intricate web of complex relationships that connect these factors (where price and demand is just one of the simple relationships at play) is an essential piece of work. Only then can you begin to understand the "science" behind retail and shopping - and that can provide a truly transformative effect on the company, culture and performance.
Do you have a solid grasp of the profitability in your business, and how to pull the various levers to optimise this?
Retail transformation news headlines
📈 M&S and Bensons for Beds have reported positive financial results as their respective transformation efforts start to deliver. M&S revealed a 75% increase in H1 profit and are currently in the middle of a spree of new store openings. Bensons for Beds, meanwhile, have turned a profit for the first time since 2020. Of course, there always should be a meaningful impact driven by the transformation which ultimately should translate to the bottom line. However, it's always fantastic to see these positive results coming through and stories like this should act as motivation to other companies.
👶 Poundland have expanded their fashion category to 560 stores, with a large focus on baby and kidswear. The initiative is "powered by" parent company, Pepco, and their significant buying power that spans across Europe. The range will be fast-moving, with new lines expected on a weekly basis. This significant move into the clothing industry will be an exciting shift for the competitive environment where Poundland's extensive store estate.
❌ Asos are closing an automated fulfilment centre just two years after opening it. CEO José Antonio Ramos Calamonte mentioned that the business is running a more streamlined stock operation, with around 30% less stock compared to the start of the year. Running a leaner business with less stock is a good move, assuming it's the right stock, and streamlining to reduce redundant space is also sensible.
📦 In Ohio, US, Amazon are trialling a new plastic-free packaging warehouse operation. Where plastic film was used in packaging, paper-based alternatives are being used instead. They are also trialling a custom-made box solution to perfectly size the box to fit the products. They are intentionally stress-testing these options during this peak season to confirm viability for deploying at a larger scale, whilst also building stakeholder support internally.
🔍 In China, JD.com announced a new "Smart Check" for imported goods to provide enhanced and on-demand authentication. The initiative focuses on accelerating cosmetics quality checks, using blockchain for anti-counterfeiting solutions and providing authenticity inspections for direct mail verification. As JD looks to expand globally, both from a sourcing and a customer angle, providing robust and trustworthy data will be crucial. Their import business has seen a 10x product increase from overseas companies.
🤑 After streamlining their business, Getir are back on the acquisition hunt, buying FreshDirect from Ahold Delhaize as they look to expand in the US. FreshDirect will continue to operate under their brand name for now, but it sounds to me like Getir are interested in this move for their supplier network and freshness - a crucial factor for customers.
🧱 Meanwhile, Lego are working with Just Eat to offer UK customers a quick commerce offering. Orders are fulfilled from Asda stores but I'm left wondering how urgent that next Lego set? Perhaps it will offer a lifeline for the truly last (10) minute Christmas shopper.
🤝 In the US, Shein and Temu seem to have reached an agreement between legal cases made against each other. Shein had accused Temu of using influencers to share negative sentiment on Shein, whilst Temu accused Shein of violating US anti-trust laws, based on forcing suppliers not to trade with Temu. The details of the resolution have not been made public but feels like it might not be the last time these two go head to head in the courts.
New podcast episode: Golden nuggets from the fifth year of the podcast (part 1) - #263
As the world of retail continues to evolve, transformation and business improvement remain high on the agenda. The podcast is now celebrating its 5th birthday, so as per the tradition, I'm pulling out clips of the best bits, or those famed golden nuggets, for you to enjoy. The clips feature ideas about retail technology, data, AI, omnichannel retail, retail media networks, business models, customer experience, cost savings and profitability. Listen now to this first part with retail-inspired golden nuggets from the past 12 months.
Take a listen to episode 263 of the Retail Transformation Show podcast and discover:
- Highlights from different episodes, featuring expert guests and from my solo shows.
- Takeaways on topics like new business models, CX, retail media networks, marketplaces, data and AI.
Check out these recent episodes too:
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In the meantime, keep transforming better!