Retail surgery: My business has increased the number of promotions it is doing - how can I ensure my strategy is effective?

Retailers are using markdowns and promotions to an unprecedented degree, but while this activity helps increase like-for-like sales, it can often be at the expense of profitability.

According to AlixPartners, in a sample of 15 large retailers reporting in the third quarter of last year, average like-for-like sales were running at 1.8% down, but reported profits were down 30.5%.

According to AlixPartners director Dan Murphy, retailers need to be clear why they’re doing promotions in the first place. “Promotions need to change consumer behaviour in some way,” he says. “Whether that’s trying to get them to try a new product, buy an additional one, or purchase more of the same one.”

He says many promotions fail to meet this criteria, citing the number of times customers need to have a ‘three-for-two’ offer pointed out to them once they’ve reached the till. “They may as well just give the customer a £5 note,” says Murphy.

Murphy says it is vital for retailers to have a function in their businesses that manages promotional strategy, and be clear that any promotions deliver an improved net cash margin, which means selling sufficient volumes to recoup the margin lost.

He adds that retailers need to be sure they learn from the success of past promotions, and ensure they tailor them to appropriate groups of stores to deliver the right results.

The results of trimming non-effective promotions can be significant - by working with one US retailer Murphy says AlixPartners helped reduce promotional discounting by $40m (£25.8m) in the first year while margins improved.

Briefing

A Skillsmart Retail report on skills priorities of the sector has highlighted that the growth of multichannel is creating new challenges for retailers, as they seek to recruit staff with skills in things like ecommerce

strategy as well as specific web design skills. The report also showed that the percentage of employees in retail with no formal qualifications has fallen 4% since the research was last conducted in 2006. Three quarters of retailers anticipate that their training budget will be the same or higher in 2010 than 2009.

The BRC has hit back at claims by the Government that the drinks industry is failing to meet a voluntary agreement on labelling. The BRC says retailers have set the pace on providing alcohol unit information on their own-brand drinks and don’t need to be told to be responsible.

The Department of Health has just launched a consultation that has raised the idea of making it compulsory for alcohol products to be labelled in this way.