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Episode 26: The 80/20 Rule - An Honest Assessment to Focus Retailers




Announcer: Welcome to this episode of “60-second Retail” - a BDO podcast keeping you in-the-know on events and trends in retail and consumer products industry impacting your bottom line, in just a few short minutes.

Natalie: Hello, my name is Natalie Kotlyar. I am the National Leader of the Retail and Consumer Products industry group at BDO USA. In this episode, we are speaking with Val Laufenberg, Partner in Management Advisory Services, at BDO USA. Today we are hear to discuss how the 80/20 principle can be leveraged to identify the most important inputs in a retailer’s business and how to prioritize them. Welcome Val.

Val: Hi Natalie.

Natalie: How does the 80/20 play a role in a business strategy?

Val: Yeah, Michael Porter is a famous thought leader in this arena and he famously said, “the essence of strategy is choosing what not to do.” A company without a strategy is effectively, willing to do anything. Choosing what not to do in rallying the organization around that ever-important word of “no”, is really hard in my experience.

One of our favorite operating frameworks to assist an organization in strategic and daily decision making is 80/20. 80/20 is the Pareto Rule. It tells us that 80% of results in anything, come from 20% of our efforts.

Putting an 80/20 lens on business strategy makes it obvious to everyone within the company where the focus should and should not be.

Natalie: So that’s really interesting. How can retailers apply the 80/20 strategy?

Val: In business, 80/20 tells us that 80% of our revenues and margin come from 20% of our products and customer types. On the flip side, in a retail environment, 80% of costs are supporting 20% of the business.

We're finding in our studies that 1 out of every 2 retailers are looking to cut costs, while simultaneously investing in digital transformation.

Relative to these market findings, we like to help retailers put their data into various 80/20 analysis to understand a few different things about the business.

The first is, where are the pockets of extraordinary profit and loss?

If the retailer is looking to cut costs, how can the organization be more surgical with that cost cutting?

And lastly, if the organization is looking at amplifying its online presence, what customer types and product should it focus on?

Natalie: Those are all really great examples.  In this tough environment, I am sure that everyone who is listening is wondering, what benefits we can retailers see as a result of applying the 8020 strategy?

Val: A number of things come to mind. The first is an improvement in customer satisfaction in loyalty within the groups of customers that matter most.

Another is less burnout within the company's team.

Improved return on investment from digital transformation projects isn't an obvious benefit.

Improved profits with less working capital.

And lastly, one of the benefits of 80/20, is installation of an operating mindset that everyone can rally around in the organization.

Natalie: Great. Thank you, Val for joining us today and I look forward to speaking with you on future podcasts.

Val: Thank you Natalie.
 
Announcer: And that concludes this episode of BDO’s “60-second Retail” podcast.  Don’t forget to tune in for the next episode!  To find more information on our hosts, guests, BDO’s services, or listen to previous episodes of “60-second Retail”, please visit www.bdo.com/60-second-retail.
 

 
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