As ever, we like to dig beyond the headline numbers and challenge ourselves to, forgive us Apple, think differently. One of the things we have been thinking about a lot lately is speed. We hear people talking about it all the time. Speed up your supply chain. Speed up your decision-making. Speed up your website. Speed up your returns processing… It can sometimes feel like we’re at a NASCAR convention.
From our vantage point, while getting faster is hard to argue with, the main dimension where speed matters is where it’s felt most by consumers—on the floor (or screen). Our gut says that the more frequently a retailer can make assortment changes (even minor ones), the more likely consumers will reward it with visits—and if the product is compelling, those visits should turn into revenue and profit.
So, although we hear a lot these days about fast fashion stealing market share from traditional retailers, what we really think is happening is not “fast fashion” but “fast any product,” as long as consumers recognize newness and feel compelled to check out what’s new. For consumers then, “fast” is really about how often they feel like they can find new products in a store.
So, if that’s why fast matters to the consumer, we wondered if we could see anything in retail results that would make a retailer think that fast should matter to them. In other words, are consumers rewarding retailers for newness?
To find out, we took an admittedly unscientific approach and lumped 20 public retailers with revenues over $1 billion into two buckets: “fast” and “slow” based on how often they get new product to the floor or screen. By this definition, it’s not just the traditional fast-fashion players that get labeled “fast.”
Life in the fast lane
We think we turned up some interesting results. Our “slow” group significantly underperformed on margin. And more interestingly, especially during the promotion-heavy holiday season, ”slowness” appears to contribute to fourth-quarter margin declines (figure 1).
Meanwhile, our “fast” retailers have higher operating margins in general—by about 500 basis points. And speedy retailers really seem to hit the gas in the home-stretch fourth quarter, when “fast” retailers beat their slower peers on margin by 10 percentage points.
Problem solved. Everyone just speed up and you’ll increase margins! Of course it’s not that easy (or universal). Redesigning an entire organization (and partners/suppliers) to orient around speed and newness is a long and complicated process. Even though we are staring down the 4th quarter, there may be a few tactics retailers can still try to avoid a fourth-quarter margin slump.
Fake it till you make it
- Shift inventory with shallow buys out of low-volume doors, and put more prominent displays in top doors
- Frequently update visual merchandising and signage and move around store planograms to feature different items
- Market not only new arrivals but also future new items (even if those items aren’t technically “new” because you have sold them before)
- Consider putting some online-only styles into select stores
- Work with vendors and see if it’s possible to pull forward exciting items, especially spring items in regions with warmer-than-expected weather
- Explore new products that international vendors already have on hand and can fly in quickly, or work with domestic vendors that can deliver products to stores even faster