Using “Analytics to Detect Retail-Fraud” : practices to “Help recover Margins Lost” | by: Deloitte | The Wall Street Journal

” Retail company CIOs are deploying “Predictive Capabilities”, continuous monitoring tools, and a host of innovative practices to help recover margins lost to criminals”…

As widely reported in 2006, a fraudster systematically deprived retailers of more than $600,000 over a three-year period by placing counterfeit bar codes on high-end toys, greatly reducing their price. The thief then bought the toys at their artificially low price and resold the items online for nearly full value. After monitoring sales reports for trends and anomalies, loss investigators eventually caught the perpetrator—but it took them three years.

Since this high-tech heist was exposed, “Shrinkage”—Retail inventory losses caused by fraud OR error—has not abated. In fact, global retail shrinkage increased worldwide 6.6 percent to $119 billion in 2011, an average of 1.45 % of retail sales…

Today, Retailers routinely find themselves battling attempted manipulation of their Financial-Statements & POS Transactions, collusion among Vendors, Shoplifting & Refund Fraud, plus a host of often elaborate schemes involving salaries, wages, and Employee-Theft / Pilferage..

“ It’s likely retailers will have to step up the pace of innovation in their fraud prevention and detection activities if they are to recover more of the margin currently being lost to fraudsters,” says Keith Denham, a principal in Deloitte’s Consumer Products, Retail, and Distribution Advisory practice.

“ It is time for the retail industry to consider how new technologies and data analytics may help to detect more fraud and improve margins.”

Common Fraud Management Challenges:

While designing and implementing strong internal controls in known risk areas is an important part of fraud management, it may not be enough to recover more of the margin currently being lost to fraud. Consider the limitations of traditional fraud prevention activities and how deploying analytics could help CIOs and business leaders transform their approaches for combating Retail Fraud :

Resource Constraints & In-efficiencies - The resources needed to prevent and detect fraud are often limited for budgetary reasons. Those that do exist are likely focused on traditional activities, such as internal audits and detection techniques chosen primarily for their simplicity and economy. For example, when a retailer has many locations, personnel experienced in audit and inspection processes and who possess historical knowledge of audit outcomes often determine which locations warrant increased scrutiny. Yet staff reductions throughout the retail sector have led to a loss of experienced personnel, thus hampering the effectiveness of traditional practices. “New analytics technology can help fill the void created when experienced personnel leave and take their accumulated knowledge with them,” says Darren James of Deloitte.

“ By using analytics to mine transactional, financial, and other data, auditors can flag investigation locations that display greater anomalies. Moreover, they can use these tools to learn from audit and inspection efforts, and retain that knowledge for ongoing data analysis and monitoring.”

Outdated Technologies & Limited Data Analytics - “In their use of analytics, some retailers appear to be playing catch-up,” observes James. “Basic point-of-service (POS) analytics only take you so far. By deploying predictive analytics to better understand anticipated sales volume of a given stock keeping unit (SKU) and anticipated sales of products in the secondary marketplace, retailers might be able to identify certain product transactions as outliers and alert stores to increase their scrutiny of such sales.”

Inadequate Control Activities – “Internal thefts are pervasive in the retail industry. Indeed, some of the most significant fraud is committed by employees who hold high positions and have the authority to override internal controls to achieve their goals”. For example, commissioned employees might abuse their power by selling below the company’s discount limit to reach a personal sales quota, and franchise owners may be tempted to under-report sales OR buy supplies from someone other than the franchiser to reduce franchise fees and procurement costs. Data analytics can provide a new level of transparency and insight into such activities.

Oversight & Lack of Continuous Monitoring - Traditional fraud prevention techniques tend to be historical rather than predictive. As such, effective oversight processes are often labor intensive and time consuming. In contrast, the credit card industry uses real-time alerts to flag unusual customer transactions, thereby triggering a hold on these transactions and avoiding potential losses. As a result, credit card companies can use employees to intervene, when necessary, in high-value transactions requiring more sensitive handling, such as those involving lucrative accounts. “In some ways, the retail industry has not kept up with other industries in implementing continuous monitoring techniques,” says Robert Fowlie, a partner in the Forensic practice of Deloitte.

“ Many retail companies have significant amounts of data at their disposal, captured daily through operations. But turning that data into insight through continuous monitoring and real-time feedback remains a challenge.”

Building an Effective Fraud-Risk Framework :

Retailers can often benefit from implementing a holistic fraud framework that supports the continuous innovation of fraud management strategies. Rather than simply augmenting traditional activities, this model takes a fresh approach to improving retailers’ ability to prevent and detect fraud. The framework comprises “FOUR Main components” :

1. Cultural Assessment - By examining a company’s culture, business ethics, and actions, decision-makers can focus their fraud management efforts and apply data analytics to important areas. One strategy for gaining needed insights could involve gathering anonymous feedback from a large group simultaneously using an established web-enabled survey tool. The survey can include six principal areas: awareness of relevant policies and follow-through; corporate culture; observed unethical or questionable actions; issues that either facilitate or reduce the likelihood of fraud occurring; respondents’ perceptions of the desired outcomes of ethics and compliance efforts; and specific risk issues. By evaluating the results of the survey, decision-makers can better identify areas of fraud risk using objective data rather than the potential biases and misinformation.

2. Technology & Data Analytics - Understanding the fraud-related challenges a company faces can help focus IT’s efforts to build and implement a tailored technology solution. An organization can likely accomplish this by analyzing data from daily transactions and activities such as purchasing, accounts payable, POS, sales projections, warehouse movements, employee shift records, returns and store-level video and audio recordings. Rigorous and regular sample-based analysis of data across the company can help pinpoint fraudulent activity and develop appropriate priorities for case management and investigation. It may also reduce the false positive rate of detection and prevention strategies.

3. Effective Control Activities - Many companies begin to build control frameworks and processes after a large and public fraud causes significant negative financial and reputational damage. All retailers—even those with established control activities—can benefit from reviewing their existing risk environment and processes, and identifying how innovation can enhance these activities before an incident occurs. One way of evaluating a control environment is to hold a series of facilitated stakeholder workshops, which can help the company assess the likelihood and potential impact of different types of fraud, as well as help to identify limitations in the control environment, such as potential management override.

4. Continuous Monitoring & Innovation - Fraudsters continuously adjust their activities to circumvent fraud prevention and detection controls. If retailers want to fight fraud effectively, they should take a similarly flexible approach. Continuous monitoring can include several tactics, such as tracking product and inventory movement for unusual patterns that may indicate shrink and store associate theft, and monitoring exceptions and trends, such as the number of invoices from suppliers over time, unusual invoice number sequencing, and the amount of money spent for goods and services purchased from a particular vendor. In addition, companies could consider building a model for a predicted number of product returns per shift. When numbers exceed a set threshold for returns by product or by individual, manager verification can be invoked.

Risk management programs will vary depending upon a Retailer’s Fraud-Risk profile and the current state of its controls. Increasingly, the effectiveness of these programs may hinge on the way a retailer leverages analytics. “ Staying one step ahead of the fraudsters is critical to protecting a company’s assets and reputation,” says Denham.

“Implementing Data Analytics into the elements of a company’s Fraud-Framework can help identify patterns, trends, and anomalies in the data. It can help detect a broader range of exposure, including previously unknown risks and uncover new patterns of fraud”.

Several Foreign Hotel-Chains like “Rotana, Meininger, Jumeirah & Six Senses” eye Indian market | ET Retail

A string of global Hotel Chains including “Rotana”, “Meininger”, “Jumeirah” and “Six Senses” is waiting to enter the country in the next Two years, attracted by the growth prospects this market offers..

” If you look at the global situation right now, for these brands, China and India are the two largest markets”.

“Everybody continues to believe that India has the potential, no matter how bad the numbers look.” As these brands are already present in China, their current focus is on India. They are in exploratory stages to launch a mix of their portfolio, mainly in the mid-market segment.

Berlin-headquartered Meininger, owned by travel major Cox & Kings, is considering operating leases and management contracts in India, through tie-ups with unbranded hotels operating in good locations.

The company’s chief executive, says India is one market no one can choose to ignore. “It is still relatively ‘un-hoteled’ and the travel market is expected to double in the next seven-eight years from 850 million travellers. And since Indians by nature are price sensitive and value conscious, our philosophy will fit right in.”

While hotel management companies are upbeat about the Indian market, finding the right partner here is proving to be a challenge for them. According to Senior vice president for South Asia and Southeast Asia at Rotana Hotel Management Corp, choosing the partner has been tough after the company decided to enter India about two years ago. “By the time we made our entry into the market, things had slowed down. That has made us work a little harder.

It is difficult to find long-term partners in India and since a lot of developers come from a residential development background, they expect quick returns,” he says….which they are coming to terms with, slowly.

However, adds that India is extremely under serviced and “Rotana” is looking at opening 20 operating hotels in the next decade. The Middle-East hotel chain plans to focus on the mid-market segment in the country, looking at the significant growth potential.

According to HVS, mid-market brands make up 34.4 per cent of the proposed branded hotel supply between 2012-13 and 2017-18. However says, that it is currently a wait and watch situation for these companies and while they are charting plans for the country, their actual entry will only happen post elections.

Dubai-based Jumeirah Group, a member of Dubai Holding, had been in talks to open properties in Mumbai and Goa. But owning to the macro-economic scenarios, timelines to conclude deals are getting longer and harder.

The new hotel companies will also have to face stiff competition from existing Indian brands like Citrus and Keys which are on an expansion drive. Citrus Hotels and Resorts, for instance, recently added five hotels in new micro-markets in India.

Keys Hotels has a pipeline of 22 properties that are expected to open in the next two years. The company is also in talks for 80 new deals and expects 20 per cent of them to convert into management contracts.

Typically, a mid-market or budget hotel would cost around Rs 20-25 lakh per room and would be sustainable at max 100 rooms. And banks are open to lending to the new wave of projects..

“Even if they are lesser-known brands right now, but with a good micro-market, banks would be willing to lend,” says Deven Shah, senior vice president for debt capital markets at Kotak Mahindra Bank that lends to hospitality projects.

Project cost for a Mid-market OR Budget-hotel would be around Rs 20-30 crore, excluding the land cost which would not be very high in these locations, he says…

Building “Lasting Leadership Models” : its about “Emotional Courage” | by: Richard Rekhy | People Matters

“Leadership is a Lot about Emotional Courage and the only way to teach courage is to demand it of people ”..

“Survival of the fittest is not the same as survival of the best. Leaving leadership development up to chance is foolish” - Morgan McCall.

We are living in an increasingly interdependent world. Rapid shifts in technology, geopolitics, environment, economy and business models have created complexities that the world has not seen before. This era is hyper dynamic and threatens to overwhelm companies with its velocity of change.

Are we prepared to meet these challenges and take our companies through the next phase of growth? What is the one factor that will work across sectors and make companies robust enough to face the new world and carve out the road to success? We need more leaders, better leaders and we need them fast. We need leaders who add genuine value to people and organizations; we need leaders whose integrity is unquestionable; we need leaders who can inspire and motivate and we need leaders who have the capability to create a legacy.

“ It is important that identifying high potential leaders for future becomes a part of the DNA of an organization, followed by assessing their strengths and development needs, and then a plan that hones them into leaders Leadership development cannot be detached from business strategy. It must be a balance of body, heart and soul, of skills & knowledge, of execution and behaviour. Leadership development cannot be detached from business strategy. It must be a balance of body, heart and soul, of skills & knowledge, of execution and behaviour”..

The words of John Maxwell resonate with me – “ The single biggest way to impact an organization is to focus on leadership development. There is almost no limit to the potential of an organization that recruits good people, raises them up as leaders and continually develops them.”

It is true that one of the most critical factors of a company’s future is the depth and quality of its leadership. Companies that invest in leadership development find themselves future-proofed and better prepared to deal with uncertainties and a changing world. It is critical to realize that the ethos of leadership development lies in creating a culture of performance. Great leaders attract, hire and inspire great people. A mediocre manager will never attract or retain high-performing employees. A focus on leadership development attracts high-performers and promotes a high performance driven culture. Organizations that are ‘built to last’ are those that take leadership development seriously.

Is your organization focused on developing leaders who will be needed for long-term success? Is talent management, retention and successful leadership transition a part of your business plans? Are you building a leadership pipeline that is broad based and cuts across various levels in the organization? Succession planning usually focuses on the CEO or those who are a few levels below the CEO. In its true essence, the only way to build a leadership pipeline is to focus on each level within the organization. The objective should be to produce a continuous supply of leaders. It is important that identifying high potential leaders for future becomes a part of the DNA of an organization, followed by assessing their strengths and development needs, and then a plan that hones them into leaders.

It’s not just about achieving business results; it’s about nurturing people. In fact, business results cannot be obtained without energizing and challenging people who make it happen. Companies need leaders who truly care about people. It is time that leaders realized that the scope of succession planning must broaden, that building talent pipeline ought to extend beyond top management. It must include everyone who makes a meaningful contribution to the company’s plans. The talent pool within the company must match the pace of growth. Every leader at every level must work to create more leaders and not followers. People who are secure in themselves will have the courage to do this. Jack Welch articulates this well, “ I was never the smartest guy in the room. From the first person I hired, I was never the smartest guy in the room. And that’s a big deal. And if you’re going to be a leader – if you’re a leader and you’re the smartest guy in the world – in the room, you’ve got real problems.” – Jack Welch

While the process starts with the scouting and identification of leaders at each level in the organization, leadership development has to go beyond conventional skills training. You have to also look at attitude and behavioral aspects. The first and foremost focus must be on values and ethics. No amount of skill or knowledge can compensate for the lack of values. It doesn’t matter what your title is, if you don’t do the right things for the right reasons, you will fail. If an organization fails to assess the values test in potential leaders, it is letting itself up for future disaster. Ultimately, an organization lives and dies by its leadership; it must, therefore, aim for a value-based leadership development program. The former PepsiCo Chairman Wayne Calloway has rightly said, “I’ll bet most of the companies that are in life-or-death battles got into that kind of trouble because they didn’t pay enough attention to developing their leaders.”

Leadership development cannot be detached from business strategy. It must be able to uncover skill gaps that can disrupt the growth of the most promising leaders. Getting the right skills in the right place must be the fundamental goal. The education and development process must be embedded in the business and married to key strategic initiatives of the company. Training must be continuous and on the job. It cannot be event driven. It must offer practical, real world connections. The connection to reality must never be lost. The development programs must offer different modules that aim and target different aspects. Cramming too many things together will result in a loss of focus. Effective leadership development programs will be a balance between formal learning approaches, learning on the job, learning by doing and learning from others. There must be an opportunity for application of knowledge on the job. There must be real life exposure to a variety of jobs, situations and bosses.

Leadership is a lot about emotional courage – and that is difficult to teach theoretically. The only way to teach courage is to demand it of people. A leadership development plan must put people into real life situations where their ability to take courageous decisions is tested, where they have the opportunity to demonstrate that they can remain steadfast in uncertainty, remain pleasant and unfazed in the face of opposition and demonstrate that they have the courage and the conviction to stand by their values. These traits cannot be learnt by attending a lecture or by reading a book. That is why leadership development must be integrated into work.

In the words of Albert Einstein, “ Learning is experience, everything else is just information”..

The power of motivation and inspiration must not be forgotten. A good leadership development program must theforefore make space for coaching and mentoring. Real life leaders are greatly positioned to train and motivate people to higher levels of performance. Existing leaders have a wealth of knowledge and experience that they can share with potential leaders. If existing leadership can be the icons that people within the organization look up to, great aspirational energies are created. A mentor or coach can provide leadership training in its most holistic aspect. A mentor who believes in an individual can inspire the individual to greatness. A lot of people have gone further than they thought they could because someone else believed in them and guided them.

To be a leader means to be an influencer ; it means that you have the power to shape the lives of others and have a significant impact on the organization. Any leadership program, therefore, must emphasize how a leader should think and act. He must realize what it means to be in a leadership role. He must be trained to understand power, dealing with politics in the organization, how to influence people, how to build trust and create alliances that will increase his ability to get positive results. Leadership development must be a balance of body, heart and soul; of skills & knowledge, and of execution and behavior.

Despite the tough economic conditions, opportunities abound. Companies will do themselves and the world a great favour by creating a pipeline of leaders who are prepared to face the new world. Organizations need to have strong processes in place before promotions take place for senior leadership positions. This group of people needs to be aligned to the vision. It’s important that promotions are based on merit and not on emotions. If we have to create leaders of the future, the young must be guided, their skills honed, their attitudes set in the right direction, their bodies prepared for the grind of hard work, their minds strengthened with emotional courage and their hearts grounded.

In the words of Noel Tichy, “Winning companies win because they have Good Leaders who nurture the development of other leaders at all levels of the organization”..

Why “Acquisitions (M&A)”,make sense in Consumer & Retail” | by: Ryan Caldbeck | Forbes

When I evaluate companies in the Consumer & Retail space, one of the most important questions I try to answer is “ Who will acquire this business in 5-7 years? ”…

Of the two most common exits for private companies—IPOs & Acquisitions—the latter outcome is far more common among consumer and retail businesses. This is an important distinction between tech and the consumer space that every investor should understand, whether you’re investing through an online investing platform or investing offline.

Consider the Mergers and Acquisition (M&A) market last year. The total value of consumer-retail deals actually exceeded the value of internet and software M&A, combined, in 2013. In 2013, the consumer and retail market was about$91 billion according to PwC. The internet and software industries had a total of $55 billion in M&A for 2013.

The point here is not that the total exit market is larger—it is only to highlight that the M&A market in 2013 was larger for consumer and retail than it was for internet and software. So why are deals so appealing in consumer and retail ? Strategic acquisitions tend to be a source of innovation for consumer and retail. 

Consumer goods and services companies frequently use acquisitions to keep pace with emerging preferences in the marketplace, says Accenture .

As Accenture wrote in a report on M&A trends, “ Many large Beverage companies have acquired smaller sports and energy drinks makers to respond to consumers’ increasing appetite for these drinks, and because these large companies did not have such products in their R&D pipelines.”

Pick a major strategic in the consumer and retail space (any major public consumer or retail company). Now think of the number of brands they have added to their portfolio over the past decade. How many did they buy versus build ??

In the Consumer Packaged Goods (CPG) industry, the most valuable asset is the brand. For a larger consumer goods and services company, it is not particularly difficult to replicate a product’s formula, find a manufacturing facility, and begin producing a knock-off of a sports drink or energy bar. And yet, at the end of that assembly line what you get will not be Red Bull or Clif Bar. That’s because the missing ingredient is the brand. When Danone buys Happy Family baby food, or Del Monte buys Natural Balance Pet Foods, for example: they are investing in an innovative and developed brand that they simply cannot create from scratch.

Contrast this with technology deals. For tech companies, the valuable asset early on is the team designing and building the product. Young, small tech companies can be attractive M&A targets. But as those businesses grow, their value lies in their scale, and the more likely path is an IPO.

A compelling tech company’s more typical route to becoming billion-dollar company is through an IPO. And private investors put their money into young tech companies with hopes of being in early on the next Facebook or Google. A consumer packaged goods company, however, can grow from a $5 million business to $200 million, and at that point be an attractive takeout target. Obviously, it doesn’t happen every time, and early stage investing is high risk in any asset class, but I’ve seen this scenario time and again in my years in this sector.

Acquirers get more than innovative products, too.  The returns that strategics achieve in the consumer space tend to be higher than returns on tech deals, according to Towers Watson. Some research, for example, shows tech acquirers had overall negative returns on deals in 2011 and 2012, while acquirers in the consumer space had positive returns in both years on those transactions, including returns of around 10% in consumer products and services.

Last year was a good year for M&A across industries, and PwC expects that to continue in 2014…aPwC points out, corporate cash balances remain at all-time high levels and the funds available for investment and low debt financing costs in private equity should support continued M&A in the sector.

This bodes well for growth companies in the Consumer & Retail space. It also bodes well for investors..

“Worldwide Sports Events Market” : Today’s Global Sports Industry | A.T Kearney

“ The sports industry today spans the field of play—from the Food & Memorabilia stands at the stadium, to Media Rights and Sponsorships. The many participants in this market are competing for a bigger slice of a pie worth as much as €450 billion”.

Today’s global sports industry is worth between €350 billion and €450 billion ($480-$620 billion), according to a recent A.T. Kearney study of sports teams, leagues and federations. This includes infrastructure construction, sporting goods, licensed products and live sports events.

Live sports events in particular offer a compelling proposition to different industry participants—from free-to-air broadcasters seeking viewers and advertising revenues and pay-TV broadcasters looking for loyal subscribers, to sponsors moving away from traditional media, event organizers, athletes and spectators.

Our independent analysis, commissioned by Lagardère Unlimited, finds that the global sports industry is growing much faster than national gross domestic product (GDP) rates around the world. And the global sports value chain—its size, makeup and revenues—has significant growth prospects for the future.

The Sports Events Market :

The worldwide sports events market, defined as all ticketing, media and marketing revenues for major sports, was worth €45 billion ($64 billion) in 2009. Football (soccer) remains king: Global revenues for this sport equal €20 billion ($28 billion) yearly—almost as much as the combined €23 billion($32 billion) in revenues for all U.S. sports, Formula 1 racing, tennis&golf (see figure 1).

In Europe alone, Football is a €16 billion ($22 billion) business, with the five biggest leagues accounting for half of the market, and the top 20 teams comprising roughly one-quarter of the market. In general, the most popular sports, such as football and those based in the United States, are growing faster than tennis and golf. Rugby is emerging and has grown exponentially since becoming a professional sport in 1995 (see figure 2).

A country-by-country breakdown finds that the sports industry is growing faster than GDP both in fast-growing economies, such as the booming BRIC nations (Brazil, Russia, India and China), and in more mature markets in Europe and North America.

The economy of sports also reflects its cyclical nature. Many of the world’s premier sporting events occur every two to four years—the FIFA World Cup and Summer Olympics, for example, take place every four years. (Figure 3) shows that yearly sports revenues have grown steadily, yet how that money is spent changes every year. In 2008, for example, major events accounted for 8 percent of worldwide sports revenues thanks largely to the Beijing Olympics and UEFA Euro 2008 football tournament in Austria and Switzerland. In quieter years (2007, for example), major events make up barely 1 percent of worldwide sports revenues.

Properties - The properties managed by rights owners are the intangible assets that draw fans and money. They include a wide range of parties, including leagues (such as the Premier League), pro tours (golf’s PGA Tour), teams (the New York Yankees) and athletes (Roger Federer, Lionel Messi).

Rights management - Historically, monetization of properties was based on gate “take” (revenues) but now professional sports depend on media and marketing rights for more sources of revenues. Rights owners, or sports agencies acting on their behalf, not only structure the deals but also trade media and marketing rights.

Events - Effective rights management depends first on operating live events. An enjoyable experience for fans can create additional opportunities for revenue.

Content - The stadiums can only seat a certain number of fans, but packaging content for broadcasters’ and sponsors’ needs is a vital part of creating revenue in modern sports.

Structured around these “FOUR Pillars”, the Sports Value-Chain becomes a virtuous circle. Shaping a property can help increase its value through tailored rights management and content packaging can make it more attractive.

For example, when cricket organizers created “Twenty20″ cricket in 2003, shortening the typical game from several days to a few hours, they shaped a format better suited to live broadcasting. This sports value chain applies similarly to the entertainment industry—including book publishing, music production and other live-event-based markets !!

Market Projections :

Going forward, the next sports cycle will likely bring somewhat reduced growth, from 6 percent per year down to 4 percent (see figure 5). What are the main projections to 2015 ??

Media rights revenues will plateau - In the wake of the economic downturn, media rights revenues will likely level off, as broadcasters face increased pressure to reduce programming costs. Negotiations are often based on bargaining power of only a few broadcasters (or in some cases just one), making outcomes difficult to predict, but conservatively we estimate overall media rights to remain stable. Because broadcasters acquire media rights in multi-year contracts, the full impact of the financial crisis may not be felt for a few years. For football, this plateau in media rights revenues likely translates to a growth slowdown from 8 percent to 4 percent per year.

Ticket sales and sponsorships will bounce back - Growth in ticket sales and sponsorships is typically tied to macroeconomic factors. A recovering economy should help bolster these areas again.

“Premium” content : Broadcasters’ battles will continue - Worldwide sports remain premium and exclusive content for broadcasters—attracting large audiences—but making money may prove elusive as consumption patterns change, the Internet proliferates and new players emerge. How will multi-screen media drive additional revenues for broadcasters? What new business models will be required to generate content on smart-phones and tablets? How to deal with the potential risks of content piracy in an increasingly digital world? What are the best strategies for traditional broadcasters facing competition from Internet-based platforms willing to acquire and distribute content? These and other issues will continue to challenge broadcasters through 2015.

Demand is growing, but supply won’t always keep up - Increasing the amount of exposure sports properties receive is appealing to sponsors, but team sports are usually limited by a finite number of teams and games (for example, 18 to 20 in football leagues, and 16 in the NFL). Even in individual sports such as golf and tennis, the calendar constrains how many public appearances athletes can make. Hence, even though demand is high, offers for sponsored platforms cannot match it, fueling a race for longer and more exclusive contracts. Sponsors will have to scrutinize their sports investments more effectively, a vital issue as the industry moves into the future.

The Business of Sports:

The wave of new stadiums around the globe, the growing size of television contracts and the continued proliferation of sports advertising portends an industry that continues to soar, even as the global economy climbs out of recession…

In “Need of a Retail Turn-around ?”: How to know and what to do | McKinsey & Co

Over the past few years, sales-growth at the top publicly listed European retailers has been a mere ONE or TWO Percentage points above inflation; average EBIT margins have dropped to around 0.5 to 1.5 percent of sales. The short- to medium-term forecast doesn’t suggest any respite from these gloomy numbers.

Changing consumer lifestyles and preferences, the Internet, and continued economic uncertainty are putting pressure on—and, in some cases, causing financial distress among—many traditional retailers.

There are broadly TWO Types of Distressed Situations a Retailer can face - One is a cash or liquidity crisis, requiring immediate cash-management and debt-restructuring measures. The other, which is trickier to detect, consists of a set of issues that may not threaten immediate bankruptcy but pose fundamental challenges to the sustainability of the business model. In this article, we discuss how to recognize—and emerge victoriously from—the second type, an undertaking we refer to as a “Distressed Turn-around.” 

How do you spot a “Distressed Retailer” ?

What’s a good reality check for retailers? How can a retailer tell whether it’s in a distressed situation? We recommend both an analytical and a strategic approach.

In analytical terms, we suggest these criteria :  a publicly traded retailer is in distress if its Total Returns to Shareholders (TRS) has been negative for TWO Consecutive years and is 50 percent OR more below its industry peers’ TRS. By this definition, more than 50 retailers in Europe, the Middle East, and Africa have been in distress since the global financial crisis. These retailers range from department stores to restaurant chains to consumer-electronics players, and from smaller national companies to large multinationals.

Strategically, Retail Leaders should keep a close watch on their performance in the six dimensions of retail excellence: Customer focus, Merchandising, Operations, Infrastructure, People, and, most important, Customer Proposition (Exhibit 1). Material under-performance in any of these dimensions can be deeply problematic, but if a retailer doesn’t have a compelling customer proposition—a reason for customers to choose that retailer over competitors—it simply won’t survive.

How do you turn the company around ?

The experiences of Distressed Retailers that have successfully turned their business around, either during OR since the global financial crisis, have shown that a FIVE-Stage Approach to Retail Turn-around’s can lead to sustained success (Exhibit 2).

Stage 1: Wake up - The first stage of the turnaround sounds easy and obvious: acknowledge that your company is in distress. But for executives accustomed to success, this stage can be difficult and humbling. Denial is the norm. When we surveyed more than 1,500 executives who have been in turnaround situations, over half of them said they had either underestimated the severity of the problem or refused to accept that there was a problem at all. One retail CEO, whose company’s TRS was well below competitors’ and had declined by more than 90 percent in a single year, refused to use the word “turnaround” in discussing the business. “We are not in a turnaround situation,” he insisted.

Our analysis suggests that in most industries 10 to 15 percent of large companies are in distress at any given time. Take a hard look at your company’s TRS performance; test whether your customer proposition is resonating with consumers. If your company is indeed in distress, it’s best to come to terms with it now, while there’s still time to act.

Stage 2: Believe nothing, prove everything - Retail leaders must then seek to understand the causes of distress—and do so in a fact-based way. Company myths can be pervasive and difficult to dispel; many companies move reflexively to action based on long-held beliefs and assumptions, not taking the time to figure out if they’re attacking the right problem. Among our survey respondents, only 22 percent said they conducted a diagnostic at the start of their turnaround program. As one senior executive told us, “We jumped to what we thought the solution was, only to find out later that we had wasted our time and effort.”

A rigorous diagnostic increases the program’s chances of success: in our survey, 60 percent of companies that undertook a diagnostic achieved a successful turnaround. The success rate was only 34 percent among companies that didn’t do a diagnostic.

The diagnostic should bring to light what’s not working, but it should also highlight what’s working well. Often, companies become too absorbed pinpointing the problems and overlook inherent strengths in their businesses that can help them overcome their difficulties. Our research shows that a turnaround in which the company diagnoses both its strengths and weaknesses is more than twice as likely to succeed as a turnaround in which the diagnostic identifies only the company’s weaknesses.

We recommend that retailers take a “clean sheet” approach, which can be laborious but often yields powerful and surprising insights. One retailer, in undertaking a clean-sheet exercise, discovered that no one on the top team knew the total number of the company’s back-office locations or the size of its workforce across all subsidiaries. Because of disparate data systems, gathering this information was a surprisingly tedious task. But doing the legwork paid off: after the clean-sheeting exercise, the company found that five of its back offices and several support functions had considerable opportunities to improve efficiency. Within six months, the retailer was able to generate material cash savings through lease exits and consolidation of back-office teams.

Stage 3: Act early and aggressively - Once the causes of distress are clear, a retailer must move quickly and boldly. In particular, the CEO must put in place an action-oriented executive team and set ambitious cost targets. Both will be critical to survival.

Without major changes in the top team, it’s hard for a company to make a radical departure from past decisions and direction. One CEO who has led multiple turnarounds has even gone so far as to formulate the following guideline: “My rule of thumb for the top team is that a third will remain, a third will be promoted from within the company, and a third will come from outside. Otherwise, nothing changes.”

Once in place, the top team must then rapidly find ways to cut costs. For retailers, the biggest cost levers are typically head-office costs, supplier funding and cost of goods sold (COGS), and property and store costs.

Head-office costs - Head-office costs can be a drag on retailers’ profit-and-loss statements. A retail CEO should streamline headquarters if one or more of the following is true:

  • The company has too many committees and boards that have been built up over the years (as a result of past priority projects or acquisitions) and never culled. One incoming turnaround CEO described encountering “a board for every topic.” Company leaders should be taking action, not sitting in meetings.
  • The headquarters organization is top-heavy. Simply splitting the head office into salary tiers can highlight this issue: there shouldn’t be more executives at the highest level than in the next couple of levels.
  • Executives have too small a span of control. The right span varies for every role, but in general (except perhaps for specialist roles), if each manager supervises fewer than seven or eight team members, the organization would benefit from delayering.

Supplier funding - Supplier negotiations, with the aim of lowering COGS, are a critical lever for most retailers. In distress situations, we have found that assertive and creative approaches to suppliers can create value very quickly.

One retailer was experiencing dramatic sales declines due to “show-rooming”: customers would browse in the stores but use their mobile devices to buy from Amazon—often while they were still in the store, taking advantage of the free Wi-Fi. The company’s analysis of industry-sales data strongly suggested that its in-store displays and promotions correlated with online sales: when a product was displayed prominently in its stores, overall online sales (including Amazon’s sales) of that product rose; when stores stopped promoting the product, online sales went down. The retailer negotiated with its suppliers to get a “fair share” of the value by calculating the online-sales boost from in-store displays. Over the following six months, the retailer renegotiated with all of its suppliers and agreed on a level of ongoing funding support that offset the retailer’s promotional costs.

Property costs - As sales migrate online, a legacy store network can act as the proverbial noose around a retailer’s neck. To get a realistic picture of its store network’s future value, a retailer should adjust for industry trends (such as the shift to online) when calculating store profitability.

A European leisure retailer, for example, launched a store-transformation program that initially encompassed only the 5 percent of its stores that were unprofitable. But when the company extrapolated current trends into the future—specifically, the migration of sales from physical stores to online—it projected a 30 percent decline in sales volume across all stores within three years. And after taking into account the allocation of central costs (such as the IT to support store systems), the retailer realized that more than half of its stores could become unprofitable in three years.

The company thus radically redefined the scope of its store-transformation program. It evaluated the entire network from a “zero base”—meaning each store needed to justify its existence.

The company divided its stores into FOUR Groups based on profitability and ease of lease exit, then developed a different strategy for each group (Exhibit 3). 

Stage 4: Fire on all cylinders - Too often, retail executives in turnaround situations think only about cost cutting. While cost cutting is necessary when the company is in survival mode, it won’t always address the root causes that led to a turnaround situation in the first place.

In our executive survey on turnarounds, respondents said that cost issues were the cause of distress in one-third of turnarounds; two-thirds of the time the cause was a challenge to the business model, such as discounters entering the market or customers moving online. Yet when respondents listed the actions their company took during the turnaround, almost two-thirds of the actions were focused on costs and didn’t address challenges related to the business model. Without thoughtful business-model actions—format renewal or reinvention, shifts in the trading strategy (in assortment, pricing, or communications, for example), or even a major change to the business model—the company faces a heightened risk of returning to a distressed situation.

One accessories manufacturer traditionally sold most of its products to distributors, which would then sell to multi-brand retailers. The company also owned and operated a handful of concept stores as brand flagships. It had steered clear of e-commerce to avoid competing with its distributors and retail partners. However, an analysis of channel profitability and customer trends showed that the future sources of profitable growth were the online channel and owned concept stores. The company thus turned its channel strategy on its head. Execution of the new strategy was a critical element of a turnaround that has led to a fourfold rise in share price and TRS uplift of 190 percent in less than two years.

Stage 5: Make it stick - A successful retail turnaround often involves changes across hundreds of stores, brought to fruition by many thousands of front-line staff, which translates into a significant performance-management challenge. According to our research, the average C-level executive spends approximately 15 hours per month in performance reviews, compared with approximately 40 hours per month for a turnaround one.

One approach that works well in turnarounds is to establish a “chief restructuring officer” (CRO) role for a limited period, typically 9 to 18 months. The CRO, usually an external hire with extensive experience in distressed turnarounds, leads the turnaround office—a “control tower” for all turnaround initiatives—and is responsible for spurring a radical rethink of the company’s operating model, pushing managers to reexamine how things are done, and challenging their assumptions about what is possible. The most effective CROs engage all stakeholders early and continuously, and they motivate colleagues by telling the positive change story over and over again. As a change leader, the CRO should operate as an extension of the CEO, with the authority and credibility in the organization to make decisions (with the approval of the CEO). The CRO doesn’t replace line leaders, but rather supports the CEO in driving the transformation so that the day-to-day tasks of running the business are not neglected.

This level of central control may seem like overkill, but our experience shows that without it, different parts of the business can easily report delivery of “turnaround benefits” while the profit-and-loss statement stubbornly stays the same. Our research shows that turnarounds with strong governance are seven times more likely to succeed than those without it.

Times are indeed tough for retailers… But being in a distressed situation isn’t cause for despair.

If retail leaders face the facts early, identify and address the root causes of their financial distress, take costs out quickly, and ensure disciplined execution, they can deliver—and rapidly move beyond—a Turn-around…!! 

The “Art of Corporate Endurance” : if “Speed is the wrong measure” for success ? | by: Eric Knight | HBR

” From a young age we are taught to be fast…As kids, we are rewarded for being the athlete with the greatest speed… At university, we are examined under time pressure… And in business life, CEOs incentivise and promote those Senior Executives who can get New-ideas to market more quickly than competitors….!! ” 

But what if speed is the wrong measure for success ?? What if, instead of being fast, what matters is endurance – the ability to sustain competitive advantage longer and more dominantly than others ?? 

” The art of endurance” can be studied in some of the world’s oldest companies. Take GKN, a British multinational on the FTSE 100 that makes auto parts and aero-space materials. The company has been around for over 250 years. It started life as an ironworks company, pursued vertical integration by entering coal, eventually moved into pressed steel wheels before diversifying into front wheel drive technology and beyond.

Or take Harris Corporation, an American telecommunications company founded in 1895. At a time when some of the world’s biggest newspaper companies are getting digitally disrupted, Harris exited the sector long ago but moved into adjacent industries. Having started out manufacturing printing presses it now focuses to high tech electronics and communications solutions, delivering over $5 Billion in annual revenue and 14,000 employees.

The art of endurance is increasingly rare….!! Over the last 50 years, the average lifespan of S&P 500 companies has shrunk from around 60 years to closer to 18 years. For each company that has lasted more than a century, there are countless more that have failed. Recall the glory days of Polaroid, Kodak, and the F. W. Woolworth Company – companies that were once the best in their field but failed to untangle themselves from deeply embedded routines, and fatally flawed resource allocation processes.

If we rethink corporate success as survival in the face of rapid, globally competitive change, then here’s the question: what does it take to sustain competitive advantage? What qualities of culture and individual leadership allow some companies to endure where others crumble under the pressure? To answer this question, I turned to the history books and extracted 4 lessons from those who have succeeded and failed :

1. Beware the dogma of founders - Edwin Land founded Polaroid in 1937. He was as famous for his visionary commitment to instant photography as he was for his autocratic style and dogmatic beliefs. Land deeply believed in Polaroid as a technology-led company committed to expensive, long-term technology projects. That makes him sound like Google. But he was also zealously committed to the physical instant print and matching the quality of Polaroid prints with the 35mm product. His singular belief was both his greatest strength and weakness.

2. Cultivate wasted time - There is an enormous gulf between ironworks and aerospace. Companies that survive build structures and systems that allow them to waste resources. The secret is to find safe structures to waste time and money. It seems paradoxical at first, but companies need slack resources to be efficient with capital allocation over the long term.

In the early 2000s, IBM (founded in 1911) had an Emerging Business Opportunities process which identified and invested in a portfolio of growth opportunities. Many of these cannibalized existing revenues but were pursued regardless. IBM built special structures to ensure these businesses could succeed independently of the parent company, and without the residual effects of being associated with IBM’s culture.

3. Talk to your customers - Good product managers are in continuous conversation with their customers. But many senior executives lose touch with the humble customer as they get closer to the C-Suite.

In a recent meeting I had with senior executives at a multinational retail bank, none of the top management team could remember the last time they had sat down with a randomly selected retail customer. It’s crucial that decision makers who own budget are in touch with what customers think about the front-line product and user experience. If they aren’t, they act in blind faith: a dangerous place to be.

4. Don’t just build “Competencies”, build “Dynamic Capabilities” - A firm can buy competencies, but capabilities are harder to develop and are the key to sustaining competitive advantage. Take Southwest Airlines as an example. It has clear competencies in being able to turnaround aircraft quickly, and manage a low cost operating model. These competencies are hard to imitate, but they can ultimately be replicated with time and money. Other budget airlines like RyanAir and Easyjet offer similar competencies in Europe.

Capabilities, by contrast, relate to structures and routines of decision-making at the most senior level of the organization. The rigor, culture and logic around these decisions are incredibly important, hard to develop, and almost impossible to change when they become dysfunctional. “Enduring companies have Dynamic Capabilities”…That means they have a culture of decision-making that is data-driven, customer-oriented, and adaptive to change.

When we slow down and think about what it means to be successful, endurance may be a more prized possession than raw speed alone. Consider what it takes to be big in 100 years, not just 100 days…