How to tell that a retail business is in turbulent waters?

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If a retail business has serious financial troubles, the news will be all over the place. Retail market analysts will post critical comments, and in no time all retail competitors are at it. These are your competitors, too, and they’ll be targeting the customers of the troubled retail enterprise.

Marketing campaigns, new retail solutions and maybe even brick-and-mortar stores pop up, and next thing you know there’s a new and much stronger competitor next door. This is the worst that can happen. Watching competitor’s annual reports is far from enough. You need real-time data to be there first!

So you need business intelligence. God forbid, we don’t mean bugging your retail competitor’s headquarters. Even CIA admits that “open sources may account for “as much as 80 percent” of the intelligence database in general”. The Robin Report has made an excellent check-list of retail store deathwatch. We adapted this a bit, to reflect your interests as a retail business owner.

1. Reductions in selling space

Retail stores that close off selling space abruptly are often signaling a crisis in lost productivity. If a competing department store suddenly shutters its upper or lower floors, and no major renovation is going on, it’s time to increase your marketing efforts and catch their customers.

2. Reductions in inventory

Stores that begin to exhibit chronic stock outages, either empty shelves or lack of continuity in colors and sizes of ongoing merchandise, are often signaling a liquidity problem. A mass merchant, big box specialist or grocery chain that can’t adequately stock its shelves is sliding down a slippery slope that can be hard to escape. Show their clients that your retail chain offers a wider choice and better service.

3. Unexplained elimination of classifications

This can foretell a retail business that is beginning to lose its way. A healthy retailer finds ways to make difficult merchandise categories viable rather than eliminate them. The decision most department stores made in the 1990s to trim consumer electronics and housewares in favor of apparel and accessories — because those categories didn’t have enough margin or exhibit enough turnover — was a bad decision that is now coming home to roost.

4. Reduction/elimination of amenities and services

A retailer that stops offering free or inexpensive gift wrap, and adequate boxes and bags for customer purchases, is also exhibiting worrisome behavior. Reductions in selling hours is another red flag. Even though it might be comfortable to follow the lead, and cut costs, too, a proactive approach would be the opposite: be generous to offer nice little things, and beat you, a retail competitor.

5. Wholesale changes in return policies

Returns are a never-ending challenge for all retailers. Appropriate changes that reign in aberrant customer behavior, without undue effect on customers at large, is a sign of a healthy retailer. But when changes take place that is completely inconsistent with past company policies and competitive practices, it is often a sign of inner turmoil.

6. Deterioration in merchandise quality

Taking quality features and benefits out of merchandise and services is always an all-too-available trick for retailers looking to improve their gross margins. But it is almost always a fool’s errand. Customers notice when apparel doesn’t fit or wear well; when features and benefits have been withdrawn or made available at higher prices than in the past; and when packaging begins to look cheap and cheesy.

Merchants under pressure, without adequate leadership, will often see this as the path of least resistance. Once set in motion, however, this course usually becomes irreversible. Customers rarely give a second chance to retailers who exhibit this behavior.

7. Reduction in marketing spending

Stores that are having trouble paying their bills often begin to reduce their marketing spending disproportionately. Cheaper paper and fewer pages in newspaper inserts, less attention to the quality of the artwork, smaller media distribution, and failure to repeat historically successful fashion and promotional events are all harbingers of trouble.

Hand in hand with this is the imposition of unreasonable and unwarranted demands on vendor partners for increases in advertising allowances.

8. Loss of price competitiveness

All retailers are sensitive to competitive price issues. When a retail business suddenly begins to be less focused on this, they are definitely heading for trouble. Failure to set prices properly, and then adjust prices, as necessary, is a symptom of a loss of integrity in customers’ eyes.

You probably are monitoring your competitor’s prices, so watch for signs of price rigidity. This can also signal your competitor is getting lazy, which is also a good chance for your retail business to shine through.

9. Reductions in customer service

Unwarranted reductions in selling expenses by understaffing departments; cutting back sales support; providing fewer cash wraps, check out stations, and pick-up desks; and cutting back on customer service are all early warnings that something is going awry.

Try buying something from your retail competitor. How does it feel to be their retail customer? If you can’t get their sales representative to talk to you in a store or on the phone, it’s time to engage. Just be sure that your retail business is doing better in that sense.

10. Reductions in lighting

Does a retail store start to look dark and dim? Has the store actually begun to turn its lighting down by removing bulbs, or is it merely failing to replace the bulbs that have burned out? Hand in hand with this goes inappropriate heating and air conditioning.

11. Deterioration in housekeeping

Retail stores require constant attention to housekeeping. This includes everything from neat, properly presented merchandise to clean selling floors, wrap stands, and restrooms. Dirty, disheveled retail stores are accidents waiting to happen.

12. Deterioration in physical plant

Stores whose buildings and property are in disrepair are signaling larger troubles. Leaking roofs, unlit external signs, poorly maintained parking lots, entrances and docks are all signs of an organization that is coming off its rails.

If your retail business focuses only on e-Commerce, the retail store deathwatch check-list can be easily adapted for Internet businesses. Also, if your company is facing temporary troubles, steering clear of these symptoms helps to keep the vultures away.

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