In the national press over the last month it was asserted that consumer spending not productivity was responsible for driving UK growth.
UK productivity, apparently, has declined over the last 10 years.
In retail, profitability has been declining as a percentage of revenue; we have not seen revenue increases mirror cost increases:
All of which have contributed to overall productivity decline.
Those that have kept profits from declining have only done so by improving input prices (the China and Bangladesh effect). Others have been able to buffer UK productivity decline by expanding successfully overseas.
So what can we do to fundamentally increase productivity in UK retail?
There are three areas where retailers should focus.
By improving productivity in these three areas we are seeing significant benefits.
Head office headcount reductions of 1-2% of revenues are possible. Add to that a 2-4% improvement in margin through better price, promotion and stock management and 3% uplift in sales through better ranging, improved customer service and better stock distribution. Surprisingly, it is possible to add a full 5% to the bottom line of any mature retailer today on a like-for-like basis.
How will the productivity increase materialise? In the end, it is about innovation and technology. But it is not about ERPs. The ERP movement has reduced every retailer to a set of average processes, whose outcomes have become worse not better.
ERPs created better integration but stifled innovation, so in a desire to be end-to-end process centric they have increased bureaucracy. Most ERPs are built on business models that are now 20 years out of date.
There is a lot more exciting innovation out there, based on excellence in each domain. Much of it delivered on a variable cost-usage model. And most of it is focussed on improving outcomes.