The new age of retail: Keys to success

Retail: Trends and threats

It’s clear that the Canadian retail landscape is shifting. More and more, successful businesses are embracing online channels and new methods of benchmarking. The e-commerce platform is now a necessity from the consumer’s perspective; and e-commerce sales continue to grow and compliment store sales, and vice versa. One trend, however, that is of concern to Canadian retailers is the rapid increase of foreign giants aggressively seeking more market share. It’s no secret that retail behemoths from the US and overseas like H&M, Forever 21, Victoria’s Secret and Zara are continuing to significantly attract Canadian consumers. What’s yet to be seen is the impact newcomers will have on the scene when they arrive, namely: Nordstrom, Saks and Uniqlo.

Aside from the foreign-factor making for shaky ground, even those facets that are normally reliable are beginning to transform. Reports indicate that the 2014 Christmas season went relatively well in terms of sales, but produced disappointing gross margins: Black Friday was followed by a sales lull, competitive promotions resulted in margin erosion, and overall cash flow was tight. On top of that, the old faithful regional mall that was once seen as the superstructure of the suburbs is now fading and has given way to standalone power centres and shopping outlets.

What can a retailer do to overcome these obstacles?

Brand management

There is a strong need for brand fortification in order to remain competitive in the current retail market. Recognizing the influence of your “brand” and allowing it to evolve helps build staying power and lifelong, loyal customers.

In 2015, it’s important to be distinct, visible, and if nothing else, resolve to be resilient. Brands that don’t shift their strategies when necessary tend to get stuck in their ways – and like Darwinism, those that don’t adapt will ultimately face extinction. Target and Sears in Canada are two examples of titans that fell prey to not strengthening and repurposing their brand to fit within market and consumer demands – whether it be a failure to launch, as was the case of Target Canada, or the slow decline over time that befell Sears. In this changing landscape, those that can analyze their brand objectively and adapt where necessary, will grow – along with their customer base.


Same-store sales growth this year is predicted to be flat, or minimal, at best, while rising labor and occupancy costs in stores and head offices present a growing threat. To counteract these forces, successful retailers are beginning to focus on e-commerce, and adopting an omnichannel approach to retailing - a ‘firing on all cylinders’ method to outshine competitors and
stay relevant and accessible to the public.

Chart 1

These two retail channels (online and store sales) don’t have to be exclusive, or rival each other, as is the case with “showrooming” vs. “webrooming.” With the advent of online stores, savvy (or some may call them devious!) shoppers partake in ‘showrooming’ – they visit a store or showroom, try something on, then go home and shop for it online to compare and find the best prices on different sites. Conversely, with ‘webrooming’ consumers browse online for the best price, then go to the retail store to make the purchase in person.

Initially these trends sent alarm bells through the retail industry as it was seen as a threat to the status quo. However, there is a shift emerging to counterbalance this as retailers are becoming more aware, and are now trying to take advantage of the trend. Traditional onlineonly stores like Frank & Oak are even opening up bricks and mortar stores to find and embrace this balance.

Topline growth

“No one needs what you sell. They need how and why you sell it.” The marketplace is now divided into two different experiences:

• High-utility, low friction
• High-fidelity, high customer service

Which category you fall in depends on your brand and how you sell it. Neither is right or wrong; each option caters to a completely different market segment. Whether you are high-utility, low friction (offering many goods at low prices and focusing on high volume with little to no additional customer service beyond the baseline), or high-fidelity, high customer service (higher margins, higher value and more focus on customer affection and loyalty), each segment should pay attention to how its product is being offered.

So what does this mean to you? Offer up something unique! Tailoring to the right approach is imperative, even when in the high-utility, low friction category. In the bricks and mortar store, not only is the distribution of product important, but the distribution of experience makes almost as much impact. It’s about enhancing the customer experience to engage with consumers at different touch points and ultimately become more relevant in their daily lives (i.e. through loyalty programs) which also relates back to, and helps in, strengthening your brand.

Investing where it matters: the 80/20 rule and Uniqlo

The 80/20 rule can be applied to many sectors but it’s never truer than it is in retail: typically, 80% of your business is generated by 20% of your products. Focus on what’s important. When evaluating your inventory strategy, be cognizant of this rule. If 80% of sales come from 20% of SKUs, manage accordingly and of course never let your inventory of these bread-and-butter items deplete.

Consider the example of Uniqlo, the retail clothing giant hailing from Japan, poised to take the global market by storm. How do they manage to stay on top despite their accelerated and aggressive expansion? They’ve evaluated their position and leveraged their strengths. Uniqlo’s methodology to inventory in the marketplace is one for future business textbooks to write about: limited SKUs that are offered in a wide variety of colours and patterns. Simple and effective. Uniqlo isn’t reinventing the wheel but they’ve found their strength and leverage it effectively. This may not be the solution to every retailer’s inventory issues, but it is a great example of adopting a strategy and using it to one’s advantage.

Merchandise planning and the Open-to-Buy (OTB) strategy

Open-to-Buy formulas consist of inventory and inventory. That’s not a repeat - it’s a selling cycle. Step one is beginning inventory, step two is ending inventory. Too much inventory means poor return on investment, while too little, means missed sales. In order to drive sales you must maximize inventory turns and have a strategic merchandise plan. This plan, when executed thoughtfully and consistently, gives way to a basis for tracking and re-planning, which can also lead to creating micro-marketing tactics to target specific consumers or push certain inventory if you see the need and opportunity. This high-level approach is effective long-term and does require thought and analysis. It’s no wonder then that best practices point to the effectiveness of establishing a senior executive as inventory manager/analyst – a planning champion for this type of strategy. Struggling retailers don’t often have such positions which means missed opportunity for analysis, for shifting the strategy, and for strengthening the areas where
weaknesses might bring business down.

Factors and determinants

When implementing this type of strategy or role, heed the existing best practices. Within your company, evaluate who plans and does the monitoring currently. What are his or her strength areas: financial or merchandising? How is technology going to be utilized? Who else will participate in the process?

Additionally, there are key points to consider when getting down to tactics:

• Core/replenishment vs. fashion
• Seasonality
• Planning Parameters

− Sales (comparative store sales
− Receipts
− Inventory
− Markdowns (normalizing the history)
− Employee discounts
− Shrink
− Initial mark-on (price/value)
− Cumulative or maintained mark-on
− Gross margin
− Gross Margin Return On Investment


Several studies have shown that an increasing number of consumers are using mobile devices to enhance their in-store shopping experience. With the recent advancements in sensor and beacon technologies, this allows for triggering or automation of in-store offers and further engagement from the retailer. This convergence gives way to the opportunity to track a whole new set of in-store metrics which were previously only reserved for online sites.

Chart 2

When combined, this convergence gives more insight into specific areas such as:

• Zones visited first and most frequently
• Popular paths
• Zone dwell times
• Zone-to-zone conversions
• Repeat visits
• New visitors
• Outside potential (people passing the store)

There are also solid methods of benchmarking that are slowly gaining new capabilities in the digital age. Loyalty programs allow you to track recurring visitors, frequency and cross-store
visits while also building retention. Coupled with conversion metrics and engagement metrics, it is now possible to capture storefront conversion, engagement rates, average transaction and sales per customer as well as dwell times per store and average visit.

These types of metrics require team work on all levels. It’s not only head office implementing this digital strategy, but as data is collected at store level, it’s up to store associates to be aware and a part of the process. While this does take a large amount of coordination it can open up reams of data that will help move your business forward, and help frontline employees feel connected to the retailer’s success, as well.

Overall, it is clear the retail landscape is going through an era of profound change. Having shed the meager year that was 2014, the outlook for 2015 is certainly a challenging one; however, with strategic planning, it is possible to close the year on a positive note. Focusing on your brand, embracing the shift towards omni-channel retail, planning and managing your inventory effectively and efficiently, adopting new methods of benchmarking and reaching out to your customer base can help your retail business prosper in 2015 and beyond.

For more information

Weekly store sales comparative survey

Richter publishes a comparative weekly store sales survey of Canadian retailers, a compilation of confidential data issued in newsletter format designed to help retailers gauge their performance on a regular basis. To subscribe to this weekly summary, click here.

Information sessions

The first in a series of four events, Richter partners Jordan Gould and Phil Lichtsztral led a group of retail executives, owners and bankers through a discussion, sharing information and perspective on the changing landscape of the retail market, as discussed in this article. Three key areas were addressed: top-line growth, open-to-buy strategy and inventory management strategies, and benchmarking of financial performance. The next events in the series will delve deeper into each area, more specifically.

To register for the second session in this series of four on The New Age of Retail, sign up for the May 28th session here. (Please note attendance at the first session is not necessary for attending the up-coming sessions.)

Jordan Gould has the innate ability to put people at ease, ask the right questions, listen attentively, assess a problem and see the big picture. But more importantly, it’s his ability to go beyond the numbers by providing valuable advice and practical solutions that has enabled him to become an invaluable resource to his entrepreneurial clients. Jordan specializes in accounting and auditing services, consulting for tax issues, and succession planning for familyowned and mid-market enterprises. With over twenty-five years of experience, Jordan works with clients across a variety of industries, including, manufacturing, distribution, real estate and retail, to name a few.

Phil Lichtsztral has been with the firm for 37 years and is currently head of our Retail Consulting Services Group, which assists retail management in identifying, analyzing and providing meaningful, practical solutions to the problems arising in today’s highly volatile retail environment. Phil provides advice to wholesalers and retailers with respect to corporate reorganizations and restructuring, procurements, short- and long-term financing for retailers, mergers and acquisitions, inventory control and management, including open-to-buy, retail organization structure and compensation, as well as store profitability.

Click here for the PDF version.

Register to our publications

About Richter : Founded in Montreal in 1926, Richter is a licensed public accounting firm that provides assurance, tax and wealth management services, as well as financial advisory services in the areas of organizational restructuring and insolvency, business valuation, corporate finance, litigation support, and forensic accounting. Our commitment to excellence, our in-depth understanding of financial issues and our practical problem-solving methods have positioned us as one of the most important independent accounting, organizational advisory and consulting firms in the country. Richter has offices in both Toronto and Montreal. Follow us on LinkedIn, Facebook, and Twitter.


For more information: