18 NOV-DEC 08
Most of life is habitual. We tend to do the same things we did yesterday the day before and every day for the last month and the last season. In retail habits—good or bad—make your store what it is. The key is controlling them. If you recognize what behaviors need to be changed then even a small effort can create big changes.
There are five things you need to STOP doing right now!
- Stop blaming the economy or competition. How is it that some retailers thrive and grow in a down economy or in the face of fierce competition? The answer is they don’t let the economy or competition dictate how they operate their businesses. In tough economic times these retailers pay attention to what made them successful in the first place. They leverage their strengths and eliminate their weaknesses. And they take steps to enhance and improve their relationships with their customers. Service is a huge opening for the independent retailer. The big boys are understaffed underpaid and underknowledged. And they are constantly losing touch. Successful retailers understand that the economy and competition are out of their control. What is in their control is the ability and desire to make their store the best that it can be.
- Quit ignoring the obvious. If there are fewer customers coming through your doors today than last year re-evaluate your advertising and marketing. If the average sales transaction is decreasing re-evaluate your sales training techniques. What incentive plans have you put into place recently to reward your sales force? If profits are down re-evaluate your merchandise management approach and expense control. Significant change in the marketplace the economy the competitive environment consumer buying habits or anything else that negatively impacts your business requires a thorough re-evaluation. Retailers go out of business because too often they didn’t adjust their strategy when things first started to change. Be objective be realistic and tackle problems head on.
Motions as an Expense
Marketing and promotions are a necessary investment in your business regardless of the economy or other outside influences. Be proactive. Drive the business. In 2008 doing nothing will get you exactly that in return: Nothing. And promotions don’t always have to be price incentives. In-store events fashion shows trunk shows giveaways… there is a long list of activities to keep your store relevant.
YouTube MySpace Facebook and even text messaging are clever ways of using technology to reach out to new and existing customers. A simple idea that too many retailers ignore is customer reward programs that encourage customers to come back and shop again. Successful retailers know that marketing promotions and event planning are a critical part of keeping their store in front of their customers. And get your vendors to participate.
4. Stop Coming to Trade Shows Underprepared
For most independent retailers going to a trade show is the single most stressful event of the season. Often just traveling to the show causes stress especially in these days of high fuel costs and airline delays. And it is getting more expensive. Be prepared. Remember the difference between buying and shopping. Buying is the process we use to select products for our customers; shopping is what we do when we buy for ourselves.
Starts and Stops NOW: Take Advantage of a Tough Economic Climate
Staying clear on the difference is critical. You are your customers’ eyes and you should have a clear vision of what is important to your customer as you prepare to shop the show. Don’t decide too quickly. There is a tendency to buy the first exciting things we see—and later seeing even better items we buy them too. Walk the entire show before you start placing orders.
5. Stop Overbuying
Stop purchasing more inventory than your traffic can bear. The key for independent retailers to weather these turbulent times and stay liquid until business opens back up is to adhere to basic…
Retail Fundamentals
The Most Basic Principle:
Buy only what you can sell profitably. In this environment it’s nearly impossible to simply sell your way out of overbought and overstocked situations. Many stores report that the weakness they’ve experienced has been primarily in traffic counts and to a lesser extent in units per transaction.
Simple sale promotions while incrementally driving more traffic into the stores and having only a minor impact on units per transaction significantly reduced sales per transaction—and most significantly cut the legs out from under gross margin. Customers who were not primarily motivated by price didn’t buy more; they just paid less for what they did buy.
The key is to keep inventory levels in line with realistic sales forecasts. Excess inventories in a weak sales environment back up very quickly which creates enormous markdown pressure. While exceptional discounts begin to move the unit inventory necessary to bring stocks into line those markdowns destroy gross margins.
I also strongly advise not to spend it all upfront. Many independent retailers feel they have to commit all of their dollars upfront to get the merchandise they want. It’s far better to stay liquid holding dollars back and flowing merchandise out through the season as close as possible to the time of expected sale. That way inventories remain lean customers are always seeing fresh arrivals and there’s cash to spend on long-margin opportunity purchases late in the season.
There are also five things you need to START doing right now:
- Increase cash flow. This should be your number one priority. In 2008 strong positive cash flow is truly a competitive advantage.
Thinking about inventory in terms of time is the essential starting point in effectively managing inventory and experiencing healthier cash flows. For many retailers thinking of inventory in terms of weeks or months of supply is a new concept. This is ironic because…
Retail Inventory Management
Often retailers who can’t answer the “how many weeks’ or months’ supply” question are the same retailers who experience recurring cash flow problems. Remember this important retail metric: For every week you can improve your annualized inventory sell-through you improve cash flow by approximately one percent of annual sales.
We sometimes hold on to the mistaken belief that maximizing sales will lead to maximizing cash flow. Not true. It is optimizing turn rates that ultimately will lead to a healthy cash flow and increased profit in your stores.
Be Prepared for the Shows
To prepare yourself for shoe shows consider the following tips:
- Know your OTB by month. Don’t buy more than you need because of minimum quantities. Always ask yourself how long it will take to sell what you are buying. If the answer is more than 3 or 4 months you may be asking for trouble. And walk the show before you place any orders to get an overview of the products offered. Don’t decide too quickly.
- Never spend more than 50-80% of the OTB. Save the remainder for in-season deals and opportunities.
- Look for items that jump out at you just as they would for your customers. Pretend you are your customer and look for items that are really unique and special.
- A digital camera is a great tool. Many shows will tell you that you cannot use a camera but it is ultimately up to each vendor. If they know you they will let you take pictures.
- Use your own purchase order forms not vendor forms—and never give an order without a cancel date typically no more than 30 days after ship date. Every order should clearly state delivery date and cancel date. Remember it is easier to buy 72 widgets than to find 72 customers to buy each of those widgets.
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Improving Cash Flow
You can improve cash flow by doing three things right now:
- Follow your open to buy.
- Recognize mistakes and take markdowns quickly. Your inventory is more perishable than you realize. Studies have shown that as much as 80% of your sales come from inventory less than 10 weeks old. The health of your store is in direct proportion to the newness of your inventory.
- Do not let out-of-stocks of wanted replenishments occur.
Paul Erickson
20 NOV-DEC 08
Perishable items infect your merchandise mix.
Make sure you have set up model stock reorder and MIN/MAX capabilities in your POS system. If you are consistently out of stock improving cash flow becomes almost impossible.
2. Take a critical look at every expense.
This is something the best retailers constantly do. When times are good it’s easy for expenses to creep up and get out of hand. Rather than cutting costs across the board here’s a simple way to look at expenses.
Don’t spend money on anything unless it does at least one of these four things:
Every other expense should be carefully scrutinized.
3. Come to markets prepared.
How well you buy how much you buy how well you negotiate how professional you are can make a big difference in your bottom line at the end of the year. And by all means go to market. Staying home to save money is “penny-wise and pound-foolish.” Use your own purchase order not the vendor’s as it has your own cancel date and other requirements of doing business with your store. The vendor form is built in their favor not yours.
Narrow the shipping window. An order that comes in between August 1 and October 31 is unacceptable. Make sure that every order clearly states delivery date and a cancel date no more than 30 days after the scheduled delivery date.
4. Start negotiating.
More than ever before both landlords and manufacturers are willing to work with their independent retail customers with whom they have a history and good credit in the marketplace.
Many retailers are holding back on opening additional stores at this time. We have seen downsizing bankruptcies and major retailers not only not adding new spaces but actually closing stores. Vacancy rates are up. Traffic is down. Landlords have fewer candidates for their vacant space. As a consequence independent retailers who do want to open stores have less competition and are able to get more affordable rents.
Better Locations or Both
Today independents are successfully negotiating advantageous new leases lease renewals rent reductions and spec reductions. If you are experiencing any difficulties now is a good time to renegotiate your lease. If you aren’t experiencing any difficulties now is also a good time to try—you might get better terms if your landlord fears having another untenanted space.
If you have cash on hand remember that vendors need cash too. Talk with them about what they can offer you in exchange for cash. And remember: they can’t deliver to retailers who aren’t making payments—but they still need to move merchandise. There may be good deals available if you take the time to look for them.
Negotiation Tips
Try to get as much as you can when you are preparing to buy. Remember the vendor is never more accommodating than when you are standing there with your pen (or cash) in hand. A few things to negotiate for:
- 60+ day payment terms—plus 30-day terms from the day you receive the merchandise not the shipping date
- Pre-paid shipping
- No pre-approval for damage/defective
Don’t Fall for Half-Truths
There are five “little white lies” some vendor reps use to shade the truth:
- “You are getting the best price.” Usually this means you are paying what every other independent retailer is paying not what the larger customers pay.
- “This is a show special and will not be available later.” Most show specials are available for up to two weeks after the show.
- “It is our best-selling item.” It may be best-selling to other retailers but there is no guarantee that it is best-selling to consumers.
- “There is no problem with deliveries.” At this moment yes but after the show when the orders are tallied you may not receive the item.
- “You will get dating.” The clock on the dating however often starts when they pick and pack not when you receive it.
Vendors aren’t looking to poison relationships but when salespeople are under pressure to produce it’s human nature to push the sale. Don’t let yourself get stampeded.
- Returns and full refund (not credit note)
- Co-op advertising
Guaranteed Repeats
Free Goods for Display
Guaranteed Sales—90 Days
Write on all orders “No Backorder” so that you move up the ladder on shipping priority.
If your credit is good and you have a history with the vendor you will be surprised at how successful you can be. Remember: The worst that can happen is they say no.
5. Start Training and Incentivizing Your Salesforce
Many independent retailers simply don’t have expectations for sales production. They say “Here’s what you have to sell this week or this month to keep your job.” Essentially these retailers put people on the floor pay them an hourly wage and hope they sell. Then there are the retailers that have some concept that people want to make more money. So they put in an incentive program and start paying commission.
The problem with that strategy on its own is that it doesn’t give salespeople skills to succeed or tools to measure their progress. How people behave on the sales floor is related more to how they are trained and managed than to how they’re paid.
Get everyone on your staff professionally trained. Turn your staff’s “helpfulness” into high-performance selling. Set accurate and objective sales goals. Make sure your employees are making enough add-on sales. Understand the new sales metrics and how they impact sales. These are behaviors—and they require that you have weekly coaching meetings with your sales staff.
Establishing esprit de corps results in better customer service and higher sales. If you invest in your people they can become your biggest asset.
Keep learning keep challenging yourself and your associates. Even in difficult economic times the best retailers take bold steps to distance themselves from the competition. They continue to identify and take advantage of the opportunities that are there even in a competitive environment and a tough economy. Retail may be the toughest profession out there but there’s always room for those who get it right.
Ritchie Sayner is vice president of busi-
Ness Development at RMSA Retail Solutions
RMSA Retail Solutions works with retailers to improve performance. He can be reached at rsayner@rmsa.com. This article has been adapted from an RMSA client conference call on 9/18/08 written and facilitated by Paul Erickson RMSA’s senior VP for Client Services.
Article Summary
The article emphasizes the importance of adapting retail strategies to thrive in challenging economic conditions by focusing on improving customer relationships managing inventory wisely and leveraging marketing efforts. Retailers are encouraged to stop unproductive practices such as blaming external factors ignoring market signals and overbuying while starting practices like increasing cash flow scrutinizing expenses and training sales staff. By taking bold steps and optimizing operations retailers can differentiate themselves and succeed even in a competitive environment.
“Retail may be the toughest profession out there but there’s always room for those who get it right.”
Real-World Examples of Retail Practices
The following examples illustrate how some retailers have successfully adapted their strategies to thrive in challenging economic conditions.
- In 2008 during the global financial crisis a small boutique in New York City focused on enhancing customer service and creating personalized shopping experiences. This approach helped them maintain a loyal customer base and even increase sales as customers appreciated the personal touch and expertise that larger retailers lacked.
- An independent bookstore in San Francisco facing declining foot traffic re-evaluated its marketing strategy by hosting regular in-store events such as book readings and signings. These events drew in new customers and increased community engagement ultimately boosting sales and customer loyalty.
- A local clothing retailer in Austin Texas managed its inventory by closely aligning stock levels with sales forecasts. By avoiding overbuying and ensuring that new collections were introduced regularly the store maintained a fresh and appealing inventory which helped sustain cash flow and profitability even during slow sales periods.
