SECRETS FOR SUCCESS IN THE
MANAGEMENT OF RETAIL STORES
Among the reasons why many retail stores are facing ever
increasing challenges today is rapidly
changing consumer buying practices, a very dynamic and evolving marketplace and
often the “fundamentals” of running a retail business get overlooked.
Industry analysts find there are specific management
initiatives that are vital to success in retailing, which includes all types of
stores. Some are obvious, and some are
not so obvious. When one has a firm grip
on these techniques, chances for success are greatly improved.
It may be that only one or two of the areas need your
immediate attention, but putting these challenges high on your list of
priorities can mean many dollars of increased cash flow back to the institution!
EXPENSE
MANAGEMENT. This is frequently a
major area of concern. One should know
precisely what the expense allocations should be for each line of your
operating expense report. Operating
expenses must be planned, not left to chance.
Expenses must be viewed as a percentage of total sales so as the
business “ebbs and flows”, you are still in line with margins goals. A monthly
expense spending review of all expenditures is vital and should be administered
with a disciplined hand. Compare actual
expenses against planned expenses. A
review every three months can be risky, every six months can be dangerous and
once a year can be terminal.
MERCHANDISE
PLANNING MANAGEMENT. The development of a
sound merchandise planning and open-to-buy program is crucial to the
profitability of any retail operation.
Forecasting and planning must be based on a sound evaluation of current
and forecasted sales and inventory figures.
In your merchandise planning program, the development of trends by type
and end-use of merchandise is essential.
This is known as classification merchandising. Growth must not only be planned but must be
planned in a manner that will insure profitable growth. The economy can go down as well as up. One must be prepared to use brakes as well as
power. Willy-nilly budgeting today for a
5% to 10% increase is not viable in today’s business environment. Planning and buying merchandise in the
right amounts, at the right time and in the right selections is key. Proper timing of deliveries is essential for
control of cash flow and to maximize revenues.
INVENTORY
MANAGEMENT. Managing
inventories to yield their highest earning potential is a serious
undertaking. It is essential to
continually measure the life cycle of merchandise and to make sound judgments
as to whether each item of merchandise is an asset or a liability. Keeping a handle on the weight of the
inventory with regard to vendors, styles, colors, sizes and balanced selections
is all important.
Many retailers have been known to have an unacceptably high
percentage of their existing inventory in stock for over 180 days. In that scenario, all that could be achieved
is a two time inventory turn, at best.
This old merchandise is most likely out of season. How much in earnings will be lost on these
old goods? Even if the merchandise can be charged back to the vendor, there are
the operational and freight costs to consider.
Our inventories are one of the most important assets we have
as retailers. Respect and treat inventories
like real dollars because that is what they are. Inventories that are aged beyond a
normal selling period and carried forward steal from net earnings.
MARKDOWN
MANAGEMENT. Timely and
well managed markdowns are a necessary part of any retailers profit strategies.
There are situations were some markdowns are healthy but excessive markdown can
bleed off additional contribution dollars.
It isn’t what sold that counts, but also what hasn’t sold. Every slow selling or non selling items is a
drag on earning potential. What is an
acceptable markdown as a percent of sales?
The saleability of inventories must be evaluated on a regular basis.
Excessive markdowns are a result of little or no planning,
overbuying and poor inventory management.
VISUAL
MERCHANDISING MANAGEMENT. Visual
merchandising is the “silent salesperson” in any retail operation. It is the presentation of properly displayed
merchandise, well planned advertising and good housekeeping that portrays store
image. First impressions are important.
They influence the customer’s conscious and subconscious decision-making
process. This merchandising technique is
essential to attract new business and ensure repeat business. The effective use of color, design and
quality projects the store’s attitude and image. The object of visual merchandising is to be
pleasing to the eye and to suggest satisfaction of customers’ need or wants.
CUSTOMER
SERVICE MANAGEMENT. Thousands
or even millions of dollars invested in retail inventory isn’t an uncommon
occurrence for both “brick and mortar”
and e-commerce businesses. It has been
observed that without the support of a well trained, enthusiastic sales staff
and an effective customer service philosophy the earning potential of a retail
operation may very well be hindered. It
is critical for management to develop training programs for their
employees. Training is not a one-shot
type of program. It should be an
effective ongoing program with specific objectives to reinforce employee
development and company philosophy. The goal is too always improve the
customer’s shopping experience and exceed their expectations.
Customers are the most important people ever, either in
person or on-line. They are not
dependent on us; we are dependent on them.
We are not doing them a favor by serving them, rather they are doing us
a favor by giving us an opportunity to do so.
Arguments are never won with customers. It is twice as hard to get dis-satisfied
customers back into your store and often that customer will tell others, making
your loss even greater. Develop strategies to attract and retain new customers
as there is always attrition in your customer base even with the best customer
programs in place. Customers are individuals who bring us their needs and
wants. It’s our job to satisfy those
needs and wants by providing value and uncompromising service.
CUSTOMER ANALYSIS MANAGEMENT. Customer
turnover is an inherent part of any retailer’s business. Customers can move away or leave for many other
reasons. For effective customer analysis management we must discover and
implement the answers to the following questions: How do we build our customer base and loyalty
recognizing that the customers are constantly changing? What competitors have enticed our customers away
and why? How do we retrieve
customers? Periodically review your
customer’s expectations to see if it has changed and you have not! You may have
to change in order to attract the potential customers now represented in your community. The majority of customers spend their money
differently now than they did 5 or 10 years ago. And this could change again in a few years!
MARKETING. Customer’s buying patterns having
been changing rapidly over the last few years. “Consumers
don’t think in terms of channels, they simply shop – in stores, online, on
their mobile phones, etc. Retailers on the other hand are organized and
optimized for channel-efficiency. Over the past decade stores have borne the
brunt of this buyer-seller disconnect, a trend only accentuated by the
value-consciousness of shoppers following the worst economic recession of our
times”.
In
the five-year period from January 2008 to January 2013, retail store sales have
grown 8.5% (quoted from recent report by EKN
Research). ECommerce sales over the same
timeframe have grown 72%. Within this time, the world order of retail has
changed. Consumers have discovered the power of smartphones, utility-like
high-speed Internet connectivity, the power of social media, and tools and
services that deliver instant access to product pricing, inventory and reviews.
According to a recent
article from EKN Research, Division of Edgell Communications,
“Retailers need to
re-organize their strategy, people, processes and technology to:
Re-imagine
stores as a hub for delivering Omni-channel experiences
Re-vitalize
stores to deliver unique, beneficial experiences
Weave
in familiar digital experiences into the physical fabric of the store
Combine
human intuition with deep consumer insight to develop truly personal relationships
with customers.”
Retail/ECommerce
businesses must embrace this new technology and use it to their advantage in
improving customer retention and attracting new customers. This does not mean
that we have to abandon old marketing strategies but re-think them in terms of
today’s contact points with customers.
CONTRIBUTION
MANAGEMENT. Contribution management is defined as the
amount of profit dollars generated from a retail store. If we reflect
over the past several years, retailing hasn’t become any easier. The fatality rate of all businesses that have
operated without sound management techniques has been escalating. With stores it is all about remaining viable
and to avoid becoming a “dinosaur” in the new world order of consumerism. With
ECommerce it is not just all about “improving the number of clicks” to your
website but how long do they stay, do they come back and do they buy? The
rewards for hard work with sound planning are still attainable.
Contribution Management should be the first consideration,
not the last. If it is last, one can
only hope that some profit will be generated by year’s end. This situation would be similar to an airline
pilot starting to fly east to New York without a flight plan. Such a pilot does, however, have a flight
plan. It is constantly being monitored
by his navigator to be sure they remain on course. When deviations are noticed, corrections are
made to get back on course so that the destination chosen will be reached
safely. Sound profit management uses the
same principles. A reasonable profit
goal must first be set. This goal then
must be systematically tested to determine whether or not the profit goal is
feasible. Some of the test questions
would be: What are the anticipated fixed and variable operating expenses as
they relate to annual sales volume? What
is the anticipated markdown percentage as a percent of annual sales? Is the average initial markup reasonable
enough to meet these considerations and remain competitive? What are the
inventory turn goals and are they achievable?
And lastly, are the merchandising techniques and tools in place to
monitor all segments of the operation on a timely basis? If the answers to these questions are
positive in nature then contributions can be improved much like the airline
pilot’s flight plan to New York.
SELF-CONTROL
MANAGEMENT. This
management technique may be the most important of all and too often the least
applied. Most successful merchants
operate and run their businesses with their heads and not their hearts.
Goal setting is the starting point. Realistic and attainable goals must be set
for all areas of the operation. To reach
these goals and to be a successful retailer, one must be dedicated to the
successful implementation of all of the techniques we have discussed here.
Intuitive decisions based on a flare for merchandising are
key to building a leading retail store.
At the same time, “Self-Control Management” means that one is willing to
exercise good judgment in the decision-making process. Don’t wildly buy merchandise based only on
hopes and dreams of how much you can sell while totally ignoring the plans you
so carefully developed!
RMSA is a merchandise
planning and cash management company that has been assisting retailers improve
their profit performance for over 50 years. RMSA is not just about OTB, but
reviews any aspect of the business that impacts financial performance. RMSA
continues to speak at industry seminars, workshops and webinars sponsored by a
variety of organizations. RMSA has been working with thousands of retailers in
the United States, Canada and South America for over 50 years and has
established a reputation for optimizing performance and delivering the expected
financial goals for our many retail clients.
These clients would be
glad to share their stories . . . just let us know.
Dave Downard
Senior Merchandising
Analyst & Consultant
626-705-3724 Cell
