Richard McIntosh

With analysts predicting consumers will spend at least £2bn more this festive period than in 2012, retailers could well be looking forward to a very merry Christmas.

But it’s not all ding dong merrily on the high street. Inflation and stagnant wages mean shoppers are still being smart about what and where they buy. So despite this busy period of spending, it’s no time for grocers to take an eye off their margins.

For an industry obsessed with profit margins, procurement is the blind spot that is costing the retail industry on average 4.8% profit, according to the 150 directors of UK retailers we recently spoke to. That’s an estimated £1.3bn across the industry.

Growing top-line sales is hard. For a typical retailer, a 1% saving in costs provides the equivalent EBIT impact of a 12% increase in sales, so the way you buy deserves attention.

You need to honestly assess the performance of your buying teams. Ninety per cent of those we spoke to rated theirs as better than average - which of course cannot be true - and 70% believed they were getting better terms than their competitors.

The buying function is a fundamental driver of retail competitiveness - a quarter of respondents said that to remain competitive they had to pass the savings achieved by procurement on to the customer. With savings harder to come by, the challenge this poses is considerable.

The answer? Buy better. An improved share of the margin is achievable with a proactive, structured, disciplined approach to negotiation that optimises every aspect of the relationship.

For own-label ranges, sourcing must be dynamic: retail buyers should be continually hunting out new and more competitive sources of supply.

On average, retailers that have addressed their indirect spend - marketing, logistics, IT & telecoms, facilities and utilities - have made savings on average of 12.4%. But just 17% are giving their indirect spend any focus. By taking a long, hard look at your buying teams and giving more consideration to indirect spend, you’ll improve your bottom line this Christmas and beyond.

Richard McIntosh is UK MD of international management consultancy Inverto

Topics