Any idiot can sell something if it’s cheap enough

markdowns, sale, discountWhy desperate attempts to create sales growth at all costs are killing retailers.

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I remember reading a quote many years ago attributed to Hungry Jack’s owner, Jack Cowin, that read something along the lines of, “It doesn’t take any skill to buy something. But it takes real talent to sell it at a profit”.

Many years ago – and under previous ownership – Gerry Harvey pointed out that Myer’s extreme discounting strategy (undertaken out of a desperate attempt to create sales growth at all costs) was based on the universal law of retail that, “any idiot can sell something if they make it cheap enough”.

At that time, Harvey had sent his merchandisers into Myer to buy product at retail that was cheaper than Harvey Norman (or Myer themselves) could purchase direct from the wholesaler. In other words, Myer were selling product below cost to Harvey Norman, a competitor, who then turned around and sold to its own customers at a profit.

Our obsession with top line sales growth flies in the face of 3500 years of retail learning. Sales without profit do not make sense. Competing on cheap or cheapest price without the best global supply chain capability in category creates economic vulnerability.

The current obsession with retailers to pursue offering the cheapest price to customers is being cited as a major contributor to an anaemic inflation rate in Australia. It is the core driver of retail business failure. It is also a direct contributor to the dumbing down of customer experience and almost every other driver of differentiation that could lead to sustainable profit growth.

There is an increasing number of categories and an increasing number of retailers that are failing due to a lack of internal capability to transform beyond chasing low cost of operation and cheap price to customer, despite the warning signs.

As Einstein said eloquently, “Doing the same thing time after time, expecting a different result each time is the definition of insanity”.

In our globally connected markets with consumers that can get anything they want simply by lifting their finger to the keypad, retailers have to change or die. Price is the full stop at the end of the sentence. It isn’t the first word. Customers don’t buy price. They buy product, and they prefer to buy it in an environment and in a way that brings them satisfaction. The price is a benchmark shoppers use to equate to value. And yes, every customer since Adam and Eve were kids has never wanted to pay any more than they have to for anything.

If you don’t have the capability internally to create a strategic plan for how to transform your retail business to build a competitively defendable way of creating profit beyond a futile attempt to price yourself out of business, seek external advice. There are many capable consultants who can help.

It is becoming very apparent that a whole generation of Australian retailers now face the very real threat of being wiped out by global competitors, big box aggregators, online discounters and savvy entrepreneurs because they have always lacked anything beyond cost focus.

Time is ticking away and the bell is already tolling!

Peter James Ryan is head of Red Communication and can be contacted on (02) 9481 7215 or at peter@redcommunication.com.

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