By David Calusdian, Executive Vice President
For those IROs and CFOs new to the retail sector, the practice of investor relations can seem like a whole new field – with new players, metrics and ways to communicate. And while best practices and the fundamentals of IR still hold true, there is a lot to learn before you can expertly communicate your retail company’s story to the investment community. Here are five tips to get you started.
1) Be Transparent.
Investors in retail stocks are accustomed to receiving robust and quality information about the companies they follow. Two key metrics include inventory and receivables, because they indicate how efficient a company is in managing that inventory – inventory turns – and the overall health of the supply chain operation. Other key examples are cash flow and cost of goods sold. Provide as much detail as possible without giving away competitive information. The reason for this is simple: If a company can manage its inventory efficiently, control expenses and produce a quality product, that information will give investors increased confidence in the firm’s earnings power.
Transparency is about more than financials, though. In a franchise model, for example, investors often want to speak directly to the franchisees themselves. Such requests can set off management’s risk meter, but the best-in-class companies enable this type of communication. They may select just a few franchisees to be investor-facing and prepare them to engage with the Street. In effect, they become spokespeople for the company. It’s important not to restrict investor access too tightly, either. If they aren’t getting the type of interaction and information they expect, some investors won’t ask management for permission and will go straight to the franchisees.
2) Define Your Customer Engagement Strategy.
In the retail industry, one of the key areas of investor interest is a company’s customer engagement strategy. This is especially true as it pertains to how channel growth and innovation can be a key competitive differentiator. In this age of 24/7 mobility, investors are keenly interested in your ability to create an omni-channel customer experience. Whether it’s in the store, through a mobile app or via the corporate website, your shareholders will be analyzing not only whether the shopping experience is seamless but whether it creates an advantage that can translate into higher revenues and profits.
For example, has your company adopted a new technology solution to make the shopping experience easier, faster or more personalized? How are you gaining insight into your customer’s buying behavior? Data and anecdotes that address these areas can provide investors with a clear picture of how you distinguish yourself from competitors.
3) Explain What is Unique About Your Company as an Investment.
No matter your specific business, the retail environment is highly competitive. Likewise, the competition for investors also is challenging as they have thousands of investment options, from restaurants and specialty clothing stores to fitness centers and electronics boutiques. Therefore, a retail company needs to stand out from its investment competition with a powerful investment thesis that explains its differentiators.
For example, what is your target demographic? Is it based on age? Gender? Geography? If you have a subscription-based service, what brings people in the door and keeps them coming back (and paying your monthly fee)? How expensive is the delivery of that unique customer experience, and is that model sustainable? The more obvious the differentiators, the more appealing your investment thesis will be to investors.
4) When Challenges Arise, Communicate in a Way that Engenders Confidence.
A rising tide, as they say, lifts all boats. But when the economic cycle is against you or the new product you rolled out for spring is a miss, management’s ability to navigate both macro and micro issues becomes critical. You must be able to communicate management’s strategy to investors effectively. That means being able to articulate what the issue is, what the action plan is and how long it will take to effect the fix. Because this is retail, fashion misses and economic downturns are relatively common. No one ever stays on top forever. The key is to be able to contain an issue, articulate the action plan to address it, and – at all times be forthcoming and honest.
5) Communicate Your Company’s Market Opportunity.
Investors are keenly interested in how you view your company’s market opportunity, particularly the size and dynamics of the addressable market. Given the market opportunity as you have defined it, what is your strategy to penetrate that market, where do you see brand/product strength and why do you believe you will be successful?
Communicating this information and providing ongoing updates, which highlight progress, changes in trends and the impact of those changes on your business – and how you are addressing them – will instill confidence in management.
Like any investors, those who take positions in retail companies want to know as much as they can about their investments. Tying together these five key points will help you create a compelling investment story no matter what your company is selling. Overall, the more clear and comprehensive the story is, and the better management articulates it, the better you will do in terms of gaining investor confidence and driving long-term shareholder value.
David Calusdian, an executive vice president and partner at Sharon Merrill, oversees the implementation of investor relations programs, coaches senior executives in presentation skills and provides strategic counsel to clients on numerous communications issues.