The fear of all sums

A US study into why some people get into trouble with their mortgages suggests that a lack of numeracy may be the reason. In the latest issue of the Economist under the witty headline of ‘The fear of all sums’, Stephan Meier says that the innumerate may be worse at managing their daily finances, leaving them with little room for manoeuvre when things get difficult.

The study shows that the behaviour of the numerate and innumerate mortgage holders were similar. They bought similar financial instruments. They borrowed similar amounts relative to their income. The value of loan to the value of property was similar. Which means that suppliers would find the two groups hard to tell apart.

What might this mean for the independent retailer sector? Most suppliers assume that shopkeepers are good at working out the margins on what they sell. However, start talking margins with retailers and you find that most are reluctant to say much.

Part of this is a fear that they are not doing as well as their peers. But part may be because they simply do not understand how to calculate margin and do not measure their business on a daily basis.

This thought was triggered by a remark from Sarah Ingram, the impulse sales director for Ferrero in the UK, to wholesalers in Newcastle-upon-Tyne this week. Asked to list her greatest frustrations, she picked on three things. After 20 years, independents were not stocking the top sellers, were not being influenced by their wholesale suppliers and were not passing on promotions, she said.

At a business level, these seem to be three areas where a quick win could be achieved. However, progress is probably being held up by the opacity of much information provided. For example, retailers buying products in a cash and carry may be acting more like consumers than business people. Price reductions are immediately factored into their margin as they simply fail to do the maths on how the promotion will work in their benefit.

Earlier this year I raised the issue of Pepsico’s grab bags at two for £1. Most retailers I have discussed this with simply do not understand that they are paying for all of the promotion. It is the flip side of the problem that Ms Ingram identifies. There are so many deals and so much inconsistency that many retailers simply give up.

For local shopkeepers, the message is simple. Get self-disciplined, get the calculator out and work on driving your daily profit up.