Despite what you may have heard, profit is not extinct. The potential for profit in retail is always there, we just need to look a little harder for it these days. So, while retailers leave no stone unturned, they also must stay relevant and forward focused during this economic downturn. And, yes I have seen many retailers that can chew gum and walk at the same time.
That is what retail is all about. Juggling customer relations, employee issues, multiple tasks and thoughts (some of them great...but always forgotten) at the same time. Wow, aren't retailers great! You bet they are, but it's all this multi-tasking that hinders our potential greatness. Because of this we sometimes loose our focus and enthusiasm. That's when, during good times or bad, we lose profit. So, in this first part of the article, let's get refocused together and take an introspective look at our possible "low hanging fruit" or profit making potential.
1. Look For The Obvious
Let's start with your exterior. That's how you attract or scare away customers. The outside of our building is who you are as a retail business. It relates to your most important commodity...your brand. No, I am not telling you to spend a ton of money right now on a new exterior design, but I am telling you to make sure the weeds are pulled, the trash is picked up, lights are working, the parking lot is in good condition and you have a fresh coat of paint on your building. The same goes for your interior. Are the bathrooms clean? You need to bring customers in and keep them in the store longer in order to support your retail profitability plan.
2. Expense Control - Comparison
Before you even think about making big cuts in expenses, have an idea of what your retail industry averages are for your type of retail business. A comprehensive comparison will help attain clarity and will be the basis for a new retail profitability plan. Now that you know what to aim for, let's move forward. Let's say that after your comparison you have found major issues with the following expenses. What steps will you take to cut expenses and improve profit?
-Rent is too high - Right now is a good time to renegotiate with your landlord. Commercial property is going through the same issues that the housing market has been facing. A paying tenant is better than no tenant. Lower costs improve profit.
-Utilities are high - Lighting can account for 40% of a retailers utilities cost. Make
sure all unnecessary lights are turned off. Review any light timers and reset them. Heating and cooling costs are always an issue with retailers. Look at raising your thermostat 1 or 2 degrees in the summer months and lowering them in the winter months.
3. Profit Margin
During your comparison of similar retail businesses you have noticed that your margins are almost 2 points lower than the average. Where would you look to gain more margin?
-Buy better - Work with your suppliers to obtain lower costs. Consolidating suppliers could give you some bargaining power and simplify the buying process. More Profit.
-Raise your retails - Do some comparison shopping and raise your prices. You're in business to make money. Provide good service and customers will pay a little more.
-Training - Invest in retail sales training for your employees. The add-on and up-selling results will begin to benefit your retail profit picture immediately.
4. Address the dead weight
In every retail business there is dead weight. It has many forms, and needs to be addressed during an economic downturn. Let's examine two possible problems.
-Inventory - At any given time at least 20% of a retailer's inventory can be deemed dead or obsolete. These products are eating up space that could be occupied by more profitable products. Turn these items into cash. Have a side walk sale to clear out these items and use the cash to reinvest in more profit producing endeavors.
-Employees - It is hard to let go of any employee. You have invested time and resources in them. However, the time is now to cut the unproductive part of your wage expense. Review each employee and ask yourself this question: is this person good for my company? If the answer is yes, hold on to them. If the answer is no, get rid of them now.
Economic downturns do happen. It's how you react and how soon you react that determines your future as a retailer. The important things to keep in mind are to maintain a positive attitude and to take a time out to do some research. Once you have developed a plan to cut expenses and maximize your profits the feeling of empowerment will return to you. With expenses under control and a system in place to keep them in check, it's time to go on the offensive. Profit can be found or made, it's up to you.
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