FirstPreviousNextLast

View all pages

State of Retail: The Canadian Report 2010

Retail Drivers for Competitiveness

In a highly competitive sector with traditionally low profit margins, controlling costs has a major impact on a retail firm's profitability. As a result, the priority of retailers emerging from the global economic downturn is to focus on cost control rather than revenue growth. Best–in–Class (BiC) firms most often identified "cost of goods sold" (COGS, i.e., procurement, landing, transportation, selling costs) as the top business driver (Figure 1). Cost centres that are not directly operations related have been identified as a secondary target in retailers' efforts to control costs.¹

Figure 1: Top business drivers facing BiC retailers¹

[Description of Figure 1]

An additional retailer focus is the ability to respond quickly to changes in customer demand. Thus, BiC firms were likely to consider increasing their investment in innovation to develop dynamic pricing techniques that can quickly reflect market conditions.¹

Drivers for Retail Distribution Investment

As retailers further integrate global production processes into their business, efficient and effective management of their distribution systems has become increasingly challenging. This has led to most large retailers committing to maintain or increase their investment to improve their supply chain management.² A key driver for investment in retail distribution is managing increased lead times^{Footnote iv} for product delivery (Figure 2). Overall, integrating into global value chains while responding better to market demands are driving investment in retail distribution activities.⁴

Figure 2: Top drivers for retail distribution investment³

[Description of Figure 2]

A common response to manage increased lead times is to raise inventory levels, which decreases the likelihood of a stockout^{Footnote v} but also leads to increased total landed cost.^{Footnote vi} Leading retailers have taken an alternative approach to this challenge by improving the efficiency and effectiveness of product flows throughout their global value chains. Collaborative planning, forecasting, and replenishment (CPFR) between suppliers and retailers have enabled retailers to lower their inventory levels and the frequency of stockouts, while increasing their inventory turnover.^{Footnote vii} The results of increasing inventory turns for retailers are two–fold: retailers lower their handling costs (and ultimately COGS) while at the same time avoiding having to depreciate sale items that are not on the shelves in the correct quantity, and at the right time. Overall, increasing agility and responsiveness to changes in the supply chain allows retailers to hold less inventory and lower costs while raising the level of customer service.⁴

FirstPreviousNextLast

View all pages