Retail Executive

NOV/DEC 2017

Retail Executive is the trusted advisor to top retail executives from the industry’s most profitable retailers. We help retail executives succeed in their job role and grow their business via exclusive, actionable, peer-driven content.

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a number of AT&T reseller stores. These stores provide disproportionately higher profit than revenue, which helps to offset challenges in the company's core video game business. Profit is key here. Many retailers have made the mistake of acquiring fledgling but sexy startups that end in big write-downs (Nordstrom and Trunk Club and Amazon with Living Social are two notable examples). For most companies, that wouldn't be radical transformation; rather, it would just spell accelerated disintegration. ▶ ADJACENCIES AND ALTERNATIVE REVENUE OPTIMIZATION. The challenge for M&A of course is that retailers often don't have enough cash to buy anything worth acquiring. This is where it makes sense to recognize where there may be other assets to monetize. IKEA realized that it could feed hungry customers after hours of fur- niture shopping. Its food business now gener- ates nearly $2 billion, making it one of the top 25 restaurants in the U.S. The Home Depot recog- nized that each store has 104,000 square feet of ▶ In 2000, Amazon generated nearly all of its $2B in revenue from e-commerce, but it now makes $100B+ in revenue, which comes from a combi- nation of e-commerce, cloud services, hardware, advertising, and original media content. ▶ Google was heavily dependent on its ad network as recently as 2005 when 44 percent of revenue came from clicks on Google properties, but that figure is now only 16 percent as Google has ac- quired blockbuster properties of its own like You- Tube, Waze, and others. Admittedly, retailers aren't like the companies above, but what does radical transformation mean in retail, and is it truly possible? Consider the following three possibilities: ▶ SMART MERGERS AND ACQUISITIONS. While retailers have largely grown through organic means, usually by opening new stores, the dearth of great physical store locations now means that retailers should start to consider buying growth. In Escape Velocity, Geoffrey Moore, the renowned venture capitalist and consultant, talks about the importance of acquisitions as a path to growth. Without some new growth streams, often from other companies, he argues that a merger or pri- vate equity buyout is the only viable outcome for a company like a struggling retailer. One company that has engaged acquisitions in a conservative but successful way is Gamestop. While Gamestop has many of the same chal- lenges as the rest of retail, including an anemic market cap, it has survived in a hypercompet- itive retail environment in part because it owns RETAILERS NEED TO CHALLENGE RETAIL ORTHODOXIES ▶ Can you sell more items without owning inventory? ▶ Do you sell your products only in your store? ▶ Do you know what is in any given store, and where it is located, at all times? ▶ Are you stuck in long-term leases with underperforming stores? ▶ Are you pricing items initially as well as you could, or are you leaving money on the table? ▶ Do you need to place orders for product nearly a year ahead of time? ▶ Are there bursts in store traffic that are mismatched to the number of store associates? ▶ Are there ways to generate revenue from stores other than selling merchandise? ▶ Do you have a way to know what a shopper is looking for when he/she leaves empty-handed but is looking for something specific? Technology investments haven't leapfrogged the industry. Companies appear to be confusing table stakes with transformation. RETAILEXECUTIVE.COM NOVEMBER/DECEMBER 2017 24 TRANSFORMATION Operations By S. Mulpuru-Kodali RETAILERS: PIVOT OR PERISH

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