The issue here is the extent to which there are real trade opportunities available in unprecedented times, and if so, what are the tools required in order to optimise those opportunities, faster than the opposition.
There is also the issue of to what extent ratio-analysis of retailers’ financial reports can help NAMs in identifying such opportunities, acknowledging that finance is now too important to be left to the finance department or the credit controllers.
For instance, if the public are becoming more financially astute, due in part to the banks’ slow motion devaluation of savers’ funds via the differential between CPI inflation at 4.2% and 3.2% rates on deposits (the result is a net outflow of 1% value…), coupled with the banks’ added ‘bonus’ of bailouts at the expense of the taxpayer, then perhaps NAMs might profit from applying the same financial insights in their day-jobs?
Before the global meltdown, financial news was strictly for geeks and rarely featured on the evening bulletins. In fact, over the last four years, since the global financial crisis was triggered by the bursting of the US housing bubble and the domino-like fall of a series of over-leveraged, under-regulated banks, business coverage has scaled new heights financially. Now, whilst it may be of interest to some that financial correspondents have even become celebrities (see here), the real issue for NAMs and KAMs is that the consumer is becoming financially educated by choice, adding reflex calculation of value to their repertoire of buying skills as savvy shoppers.
This is even more so in retail, where ignorance of finance often results in bankruptcy. Buyers are also shareholders and as a result are taking a longer term view of the financial impact of supplier-help on their personal and company wealth creation. Thus, by continuing to leave finance to the finance department, NAMs are in real danger of falling behind both the consumer-shopper and the buyer…
Why is finance so relevant, and how can it be used by NAMs, day-to-day?
Unprecedented times are by definition unique in that they provide very few reference points for conducting business… In addition, simply applying the same old techniques to business problems will no longer work. In effect, nowadays experience has less relevance, and for a short period, all players are equal… This means that when trade opportunities arise they are accessible by all suppliers, given the right tools. In the case of the current turmoil, the choice for NAMs is clear: either wait until things revert to normal, or attempt to ‘make do’ with the current situation and if necessary develop new, more appropriate approaches via financial insight.
Despite the radical changes in what were familiar markets, certain fundamentals remain: the need to make an acceptable profit on money placed at risk in a business. This reward for risk has to be better than alternative uses of the money, in order to prevent investment funds drifting elsewhere…
Achieving an appropriate level of reward for risk results in increased autonomy, cheaper costs of borrowing, more support from suppliers, more motivated staff and ultimately an improved shopping experience for the consumer-shopper. Failure to do so results in the increasing gaps becoming evident in High Streets throughout the UK.
In other words, it has become crucial for NAMs to be able to calculate a customer’s Return On Capital Employed (ROCE) using latest P&L and Balance Sheet data, and to be able to compare the customer’s performance with that of their retail competitors. ROCE is driven by net margin (efficiency) and asset-rotation (stockturn). The ability to compare the customer’s performance in these ratios with that of the competition allows the NAM to identify shortfalls that can be corrected via improved supplier-retailer integration. Incorporating this remedial help into finance-based negotiation sessions allows NAMs to trade their support for increased collaboration and willing compliance.
A trade opportunity is a window that opens briefly in the market. Apart from being transient, the opportunity is usually available to all suppliers. In a rapidly changing market, where retailers are increasingly using crowdsourcing, behavioural pricing to tailor store-level assortments to local, if not individual shopper need, and also ‘own’ the consumer, a supplier’s ability to assess and speedily react to trade opportunities can provide a competitive edge…
Being able to calculate and demonstrate the supplier’s direct impact on a customer’s financial performance, faster than other suppliers, consolidates that edge…
Using numbers from the customer’s latest annual reports engages the share-owning buyer, to the exclusion of any competitor awaiting a return to normal…
