Creating Financial Success For Your Bicycle Business: Understanding and Using Retail Benchmarks

September 13, 2011

The Marketplace is Complicated; Consumers And Retailing Have Changed• Buying Patterns Are Shifting

• Consumers Are No Longer Loyal

Without Cause

• Competition Is Fierce; Differentiation

Has Is Increasingly Difficult

• Optimizing Performance Is Critical To

Business Success

Successful Retailers Must

Improve Both External AND

Internal Performance In Order

To Stay Competitive And

Deliver Bottom Line Profits

Internet, Mail Order And Mass Merchants Are Biggest Perceived Retailer Challenges in 2011

NBDA 2011 Dealer Survey

Ask Yourself: What Are Your Businesses’ Biggest Challenges? (Internal Or External)

Does Your Business Review It’s Annual Performance To Maximize Sales and Profits?

How Can Your Bicycle Business Improve It’s Performance? By Comparing It’s

Performance To Like

Businesses In The Same

Industry22

�� called Benchmarking

What Is A Benchmark?

A measured “best-in-class” achievement,

recognized as the standard of excellence

for a particular process

A reference point or a standard against

which other performance may be

measured against

• Examples may include:

� Cost Of Goods Sold

� Average Gross Revenue

� Sales Per Square Foot

� Sales By Classification

� Inventory Turnover

Why Should a Retailer Understand And Utilize Benchmarking?• Identifying Internal Weaknesses: Provide

Guidance For Improvement Planning

• Verify Internal Strengths; Expand and Exploit

Them To Grow Business

• Determine Best Practices To Improve Internal

Operations

• Spur Innovation And Development Of New

Product And Merchandising Concepts

• Improve Cost Structures And Competitiveness

• Recognize Opportunities For

Outsourcing And Strategic

Alliances

Benchmarking Can Provide Information To Drive Maximum Business Improvement�Raises The Level Of Potential

Performance

� Sharing Of Best Practices

� Understanding World-class

Performance In-depth

� Encourages And Stimulates

Innovation

�Broadens Organization’s

Perspective

�Exposes Employees To New

Ideas

Industry General

• High Level And Industry Broad; Offers Macro-

economic Business View

• Focuses On Where And How Your Business

Compares To The Broad Group

Industry Segment Specific

• Represents Data From “Like Firms” Operating

In The Same Business Environment;

Generally In The Same Manner As Your Firm

• More Comparable Database And A Higher

Level Of Credibility

Operating Metrics

• Very Specific, Typically Financial Line Item;

Provides Details That Can Offer “Eye

Opening” Perspective When Significant

Variances Are Discovered

Numerous Types of Benchmarking Exist; Perspective Will Drive Your Choice

Retailers Must Be Focused On Building Value By Seeking Out Improvements In Performance

Selling MoreKeeping More of Every $ Sold

Tying Up Less Capital for Every $ Sold

Growing Value

Change in Business Valuation

Investment GrowthReturn On Investment

Costs/Margin Working CapitalSales Capital Expenditures

Sales Effectiveness

Are You Optimizing Sales?

Merchandising Effectiveness

Are You Buying and Using Inventory

Effectively?

Marketing Effectiveness

Are Your Marketing Investments Paying Off?

Management Effectiveness

Are Investments In Non-sales Generating

Overhead Appropriate?

Capital Effectiveness

Are Working Capital And Assets Generating

Market Comparable Returns?

Benchmarks Enable Retailers To Examine Aspects Of Performance And Effectiveness

Combining Benchmarking And Best Practices Enable Optimum Improvement Opportunities

Best Practices Are:

• Outstanding Business Practices

Which Have Been Identified As

Contributing To Significant

Improved Performances In

Leading Companies Within An

Industry

• Industry Publications,

Organizations, Trade Shows,

Webinars – Be A Continual

Learner And Seek Ways To

Apply To Your Business

Retail Business Strategy Creates Necessary Key Performance Indicators

Key Performance Indicators

Key Value Drivers

Strategy

External and Internal

Benchmarks

What Benchmarks Does Your Business Need?

Specific Benchmarks Enable Identification of Implications, Solutions And Business Impact

Obtain Benchmarks

Identify Implications

Design Solutions

Desired Impact

Continuous

Business

Improvement

Improvement Cycle Should Repeat Itself Periodically

For Instance: How Do Your Location Sales Compare With Other Parts Of the Country?

How Would Improving The Performance To The Benchmark Impact The Overall Sales and Profit Of The Store?

Source: NBDA 2011 survey

Internal And External Benchmarks Can Be Utilized To Measure Retail Performance

• Annual Average Revenue

• Sales Per Square Foot

• Sales Per Transaction

• Average Inventory Turn

• Average Gross Margin %

• Operating Expenses

• Operating Margin

• Operating Margin Per Sq. Foot

• Marketing Expenditures

• Return On Invested Capital

Key Measures:

Benchmarks Should Be Selected Based On Operational And Strategic Objectives

Results Vary By Store Size; Obtain The Proper Benchmark Before Assessing Performance

Make Sure You Obtain The Appropriate Statistic For Your Store Size and Type

Source: NBDA 2011 survey

2011 Bicycle Industry Key Performance IndicatorsCategory Industry

Average

All Shops High Profit

Sales $866,817

Cost Of Goods Sold 54.7% 53.1%

Operating Margin 45.3% 46.9%

Payroll 22.35% 22.56%

Occupancy 7.45% 5.81%

General & Administrative 9.51% 5.58%

OperatingOperatingOperatingOperating ProfitProfitProfitProfit 4.56% 13.11%

Source: NBDA 2011 survey

Cost Of Goods Sold Benchmarking

Areas To Assess

• Merchandise Selection• Vendor Negotiated Agreements• Store Pricing Strategies• Seasonal Markdown Process• End of Season Liquidation

Process• Promotional Support from

Vendors• Negotiated Shipping Terms

Source: NBDA 2011 survey

Store Type Benchmark

All Shops 54.7%

High Profit 53.1%

Potential Profit Improvement (54.7-53.1 ) X $866,000 = $13,800

Average Inventory Turn Benchmarking

Potential Working Capital Savings: ($866,000/2.5)-($866,000/3.0) = $57,773

Areas To Assess

• Product Selection And Assortment • Merchandise Planning Process• Purchase Delivery Strategy • Seasonal Markdown Process• Marketing Strategy • Sales Training/Vendor Support

Strategy

Source: NBDA 2011 survey

Store Type Benchmark

All Shops 2.5

High Profit 3.0

Marketing Expense Benchmarking

Potential Profit Improvement: (2.44-1.53 ) X $866,000 = $8,000

• Advertising Effectiveness Measurement• Assessment/Use of Lower Cost

Mediums (Social Media)• Company Collaboration Around

Marketing Activity • Allocation Of Resources To Various

Advertising Media • Cycle Times And Number Of Iterations

To Develop Creative Content

Areas To Assess

Source: NBDA 2011 survey

Store Type Benchmark

All Shops 2.44%

High Profit 1.53%

Operating Profit Benchmarking

Potential Profit Improvement: (13.11 – 4.56) X $866,000 = $74,000

Areas To Assess

• Payroll Expense• Employee Productivity• Selling Revenue/Productivity • Operating Margin Per Square Foot• General and Administrative Expense• Location Expense

Store Type Benchmark

All Shops 4.56%

High Profit 13.11%

Source: NBDA 2011 survey

Other Benchmark Considerations

Benchmark Areas To Assess

Sales Per Transaction Employee Training And Incentive Plans

Sales Per Employee Hour Employee Training, Incentive Plans And

Scheduling

Average Inventory Shrinkage Security, Inventory Processes, Point Of Sale

Reconciliation System, Shipping And Receiving

Sales Per Promotional Investment Marketing Effectiveness, Promotional Tracking

Systems, Marketing Strategy

Overhead Percentage Of Sales Staff Capacity And Utilization, Real Estate Costs,

Utilities, Unnecessary And Unproductive Services,

Outsourcing Opportunities

Return On Invested Capital Inventory Turn, Dated Inventory, Markdown

Procedures, Receivables And Credit Policies

Sales Per Working Capital

Invested

Inventory And Receivables Policies, Sales Training,

Pricing Strategies, Marketing Effectiveness

Sources For Retail Benchmark Data� National Bike Dealers Association

� National Sporting Goods Association

� Outdoor Retailer

� Retailbenchmarks.Com*

� Retail Forward

� Census.Gov

� Retail Owner’s Institute

� Consulting White Papers

� Trade Show Seminars/Associations

� Webinars

� Networking With Other Retailers

Some Sources Are Free, Some Are Not*. However All the Information is Priceless For Your Business

Benchmarking Outlines Opportunities; Solutions Require Strategy And Execution

Don’t Let The Past Be The Guide To Your Businesses Future

Creative Business Consulting Group www.cbc-group.net

CBCG Is Here To Help

Lynn Switanowski, Founder and President

Creative Business Consulting Group

• 25 Year Retail Industry Veteran

• Former Senior Executive at Liz Claiborne, Reebok and Aramark

• Areas of Expertise include:

� Sales & Marketing: Strategy, Planning and Implementation

� Social Media Strategy Development and Implementation

� Open To Buy and Inventory Planning Program Development and Implementation

Email: lynn@cbc-group.net 617.437.9191