Retail Optimization

 

A large retailer (operating in the non-food sector in the EU) wanted to enhance its performance. Causal Impact's experts carefully analyzed the retailers corporate data gathered across some 250 outlets in Germany in 2007. Causal Impact's innovative 4M Technology was used to determine the company's causal model.


Gross turnover in retail sales amounted to EUR 1 billion in 2007. Thus, the average contribution of each outlet was around EUR 4 million p.a.. However, there was a marked variability between the outlets with the lowest and the one with the highest annual turnover. In fact, annual sales differed substantially between the outlets, although marketing, shop size and distribution channels were rather identical.

The strategic question to resolve was to identify and quantify the factors influencing turnover at the outlet level. Causal Impact's experts identified and quantified nine factors which were found to impact on turnover, either directly or indirectly (the values shown in the table are so-called standardized regression coefficients):

table

With regards to taking management action and looking at the model from a strategic point of view those factors which have a strong or very strong impact on turnover will usually have to be addressed first. Subsequently, factors with a lower effect on outlet performance are less relevant for immediate remedial action.

Exemplary, this causal model suggests the following strategic conclusions:

  • except previous performance there are four direct effects strong enough to be considered for immediate management action (marketing initiatives, customer specifics, customer satisfaction, staff specifics)
  • since previous performance cannot be altered, the focus of action should be on customer specifics and marketing activities
  • customer-related variables and factors appear to contribute to overall performance of about 25 percent; this warrants a very careful look into customers attracted - and not yet attracted - as well as maintaining a better customer relationship in those outlets where this has not yet been achieved
  • marketing the different products and services successfully amount to around 20 percent of the total impact on outlet performance; since this area is typically managed very actively and aggressively, it should be investigated why substantial differences between the different outlets occur (do the logistics work? is the staff fully conversant with the marketing campaigns and the services offered? does the marketing mix and product range address the customer needs adequately locally and regionally?)

One huge advantage of our innovative 4M Technology is that it allows for benchmarking each single outlet against the average outlet shown in above causal model. This way, possible deviations to the 'norm' can be traced and quantified very precisely.

This intelligent benchmarking offers to take remedial action swiftly and reliably. Likewise, the causal model also provides for taking a closer look why the top performing outlets did much better than others. Most certainly, such introspection will yield direct managerial actions for improving the remaining outlets with regards to achieving higher turnover in future.


Integrating Non-Financials in Financials

It is highly recommended to utilize the results from the non-financial analysis and causal modelling of outlet performance in a second stage of financial analysis. Here, other aspects of controlling, accounting, taxation and auditing will be taken into consideration.


In traditional financial analyses outlet performance (i.e. gross turnover p.a.), for example, constitutes an important KPI which, commonly, is put in relation to costs, investments or ROI. The advantage of the recommended two-stage approach is evident: more detailed, accurate and reliable information about the various key factors operating on outlet performance - or any other KPI selected - are obtained.

The financial analysis - which typically encompasses elements of controlling, accounting, taxation, auditing, investment and forecasting - benefits from a preceding causal analyses due a more objective, refined and precise data and information input.

The proposed two-stage integration of financial and non-financial analyses is an innovative strategic management approach suitable to a range of industry and corporate settings, nationally as well as internationally.

We are pleased to explain these benefits in greater detail. If you need more information, please contact us.