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Allan Saffy
Allan Saffy

Transforming financial planning in retail


By Allan Saffy, FP&A Executive at Decision Inc. - Sep 4th 2018, 15:11

When it comes to developing relevant operational plans, the finance teams of South African retailers must be able to adjust for the unique challenges of this environment whether it is the likes of mobile e-commerce or real-time data analysis. 

The growth of mobile requires an effective view of multi-channel financial reporting and planning. Retailers still struggle to understand the precise financial effect that such a changing channel focus has already had, and might have, on their business. It also becomes difficult to quantify the financial impact that e-channels may have on in-store sales cannibalisation.

Now, thanks to the increasing availability of real-time data analysis, imagine a world where finance is not only able to report on the current and historical return on investment of each channel, but also on the returns each are likely to deliver because of future financial plans as outlined in the budget and forecasts.

Changing dynamics

Another indication of evolving market conditions is the strategy behind store development. A fundamental retail principle is that store presence, coupled with accessibility, positively impacts revenue. However, the process of modelling and planning new store viability is often a cumbersome and time-intensive exercise. Moreover, many retailers opt to use complex spreadsheet models that are prone to human-error, inflexible, and lack accuracy.

Retailers are under pressure to manage increased customer expectations around service and product quality and availability. Given how much choice they have in the retail environment, this is perhaps one of the biggest threats faced by organisations today. To address this, retailers are differentiating themselves with more effective front-line sales staff.

From an HR perspective, this requires moving to more permanent employees, reducing high staff churn, and increasing investment in training. This planning is often disconnected from the financial impact it will have on the business. And when there is finally agreement on the costs versus the deliverables, the resulting HR strategy is quite different from the intended one.

Predictive forecasting

In most organisations, remuneration is linked to budgets. In other words, budgets will only be approved based on adequate growth determined by the latest applicable forecast, setting the scene for the start of the traditional ‘budget games’. This entails each side attempting to anticipate the others’ next move. The problem with this is it is predominantly internally focused and built for individual preservation. The external market, benefits of innovative change, and achievable opportunities are often deprioritised to ensure a safe budget.

In terms of budgeting and planning, most CFOs need to understand whether the last forecast before the budget cycle commenced has been manipulated to produce a low budget. There are several processes and technologies available to finance teams that allow them to test the likelihood of business units achieving their forecasts relevant to both prior year and current year trends. This enables them to challenge forecasts with system-generated probability assessments and ensure an accurate view of the year-end forecast in the final quarter.

So, not only does this more accurate predictive forecasting create a more realistic platform for the generation of budgets, it also leads to more predictable business leads, better decision-making, improved stakeholder confidence, and improved financial productivity.

In a world where this exact innovation determines longevity, finance teams can play their part by innovating their processes to provide the business with meaningful decision-making information as well as more productive financial processes. All of which can help operations unlock potential strategic initiatives and give them a competitive edge. Given the complexities and competitiveness of the local retail environment, this will be fundamental to help ensure business success.

Working with a trusted partner that can help the retailer’s finance teams transform their financial planning and analytics processes becomes an important part of this transformative approach. Moreover, such a service provider should have experience in implementing complex planning and consolidation transformation projects that deal with the unique local market conditions. The partner must, therefore, be able to make the transition from global best practices with an understanding of the South African retail environment.

Financial planning in retail is transforming. How effective your business will be in dealing with this change will be up to you.


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