In a wake up call for all SMEs, discount retailer The Reject Shop has blamed an overinvestment in shiny new products and poor product placement for a dramatic fall in full-year profit.
The listed retailer announced a full-year profit of $12.3 million – a hefty fall of 27.8 per cent compared with last year’s $17.1 million profit.
While noting the general malaise dogging the retail industry and costs from a volatile exchange rate on imported products, the company’s managing director and CEO, Ross Sudano, highlighted “execution issues in the implementation of our merchandising strategy” as a core reason behind the stunted profit.
“Our focus in FY17 was to improve our performance by increasing the frequency of promotional activity in store, and to ensure new product[s] continued to flow through our stores. This resulted in overinvesting in delivering ‘new’ products at the expense of everyday value and branded bargains,” he said.
“The impact was a ‘perceived’ loss in value by some of our customers and reduced foot traffic. This occurred at a time when the availability of discretionary income was challenged, and consumer confidence among our core customers continued to deteriorate.”
However, major media outlets honed on poor product placement as the main driver for the disappointing result.
News.com.au quoted Mr Sudano as saying that while mix of branded goods was right, not having them prominently positioned at the front of stores meant shoppers could not find them in-store.
“Instead of being displayed in prime positions, these items – key to the company’s merchandise strategy – were hidden away inside, a missed opportunity to draw customers inside,” the publication wrote.
The issue of product placement is of great concern to retailers, in a bid to lure new customers in-store as well as to up-sell additional products once customers are inside.
Adam Joy, chief executive officer of the Australian Lottery and Newsagents’ Association (ALNA), recently said that analysing customer data is key to displaying products for optimal impact.
“By measuring how much time your customers spend browsing in-store (or on your online store), you can compare this with averages and set benchmarks for various improvements,” he said.
“For example, you can reduce purchasing wait times, see if customers are having a difficult time finding what they are looking for (spend a long time in-store but only purchase one item), or encourage people to spend more time browsing to hopefully purchase more.”