Show Me the Profit! Gaining Visibility into Every Component of Retail Profit
Profit is a topic we are hearing talked about more often in the retail industry today. For too long, retailers have focused on driving top-line sales and retaining market share through costly free shipping campaigns, promotions, and markdowns. As retailers pushed to increase sales and market share, shouts could be heard from Wall Street about the eroding profit that came alongside the sales and the need for retailers to prioritize and improve on the health of the business going forward.
So, who ultimately is responsible for driving retail profits? The answer is the entire retail organization. From Marketing to Site Merchandising to Buying and Planning, each department should be acutely aware of the profit being driven—or lost—as the result of every decision.
Reveal the Whole Picture
What is surprising is how little focus or visibility into profit there seems to be for a retail organization outside of the finance team and executive level meetings. Given the external and executive-level focus on this metric, it’s more important than ever for teams to know where their business stands in terms of profit. To effectively monitor and improve upon profit, retail product teams need consistent and frequent visibility to the inputs—product profit (Buying data), shipping costs (Operations data), marketing costs (Marketing data), plus any other offer costs incurred (e.g. free gift with purchase, bonus offers, etc.).
The best way to monitor and ultimately improve on profit is to first ensure the metrics are visible across the organization. Without it, efforts revolve around improving the highly visible top-line sales metric, which may not result in profitable actions for the business.
Accountability for Sales and Profit
Once profit visibility is achieved, retail product teams should also be held accountable for profit as much as they are for sales. Let’s say, for example, that a retailer launched a campaign in conjunction with bloggers that generated sales and new customers for beauty items and accessories. Without visibility to the various components that were contributing to profitability, it may be determined that the bump in sales and new customers designated the campaign as a success. However, the campaign did not result in increased profits for the business. In fact, it cost the category significantly more than anticipated as a result of blogger fees, shipping small quantities of low-cost items, and selling through a number of low-profit items that were promoted in the campaign. If profit could be easily seen and deconstructed, the retailer would likely choose to set an order threshold and exclude lower profit items for future campaigns of this nature. Ultimately, having profit visibility and accountability enables retailers to determine strategies that will drive both sales and profit.
One View of Profit Across a Retail Organization
With DynamicAction advanced retail analytics, users can quickly break down profit contribution across the business using a data visualization referred to as Profit Trees. These Profit Trees, which can be viewed at the product, order or customer level, effectively deconstruct retailing profit across all of the components that are contributing, allowing users to visually determine where exactly profit is being gained or lost. This is an example of a new visualization that DynamicAction customers are responding to, giving retail organizations an ability to quickly identify (perhaps for the first time) where there is opportunity to improve profitability across the enterprise.
Without the right tools, determining profit for each transaction, each customer, and each decision is too complex for most retailing organizations. However, that is the type of insight retailers must have to succeed and that DynamicAction can deliver.