Gift Beat Magazine, April 2011, by Natalie Hammer Noblitt
Imagine cutting your expenses by 10% across the board. What you save is pure profit— and doesn’t require you to buy or sell anything to earn it.
Picking up the phone and negotiating your expenses is an easy way to increase revenue, says retail expert William Smith. It’s just one of many simple strategies that retailers can harness to realize bigger profits .
Smith spoke at AmericasMart in January on the topic “So Where’s My Profit?” He says he wasn’t surprised to learn that this seminar was among the most popular during the show.
Smaller retailers can sometimes feel like they are working in a bubble and aren’t sure what kind of profit they should make, says Smith. The standard rule in retail is that a store should be able to make a 3% net profit per year. Larger retailers are often thrilled with 2%–3%, he says, but adds that smaller retailers can beat those numbers because their expenses and exposure are less than larger chains.
Profit can be increased in a variety of ways, but waiting until the end of the year to analyze your books isn’t enough. We asked Smith to share his tips on generating profits and increasing cash flow year-round.
(1) Find the pulse of your business. “Retailers tend not to be great number crunchers because they are retailers first. They may pull up a monthly or year-end statement to look at, but often they gloss over the numbers and don’t get a true picture,” says Smith. “They need to really examine what’s happening on a weekly and monthly basis to get the pulse of their business.” If a retailer doesn’t know what to look for when pulling up numbers from a POS or QuickBooks program, he advises sitting down with a CPA to ask questions or conducting research online.
(2) Hack away at expenses. “Figure up your true operating costs, what you must spend to run your business each day, including rent, advertising and marketing, staff costs and fees,” says Smith. “Going down that list and pecking away at each line item can easily reduce operational expenses by 10%. I advise retailers to go down the list and call every provider, like insurance and phone companies, and say,‘I noticed you have a price increase, and I’m thinking of moving to another vendor. Before I do that, what can you offer me if I stay with your company?’ Every dollar you knock off your expenses is profit. This is a technique that absolutely works.”
(3) Price to be profitable. “Retailers have a tendency to price merchandise lower than what the price actually should be,” says Smith. “If you have an item selling well at $22 dollars, odds are very good it would sell for $24.” All sectors of business are currently in a mode for increasing prices for goods and services, he adds. “Why would retailers think they should not raise prices, too? If you have a trained staff, a good retail mix and a place where people enjoy shopping, you can command higher prices.”
Smith says bigger retailers will not discount as much as they did in 2010, meaning smaller retailers shouldn’t discount just because they worry the economy has not recovered. The key is good customer service and the right product mix. He advises retailers to shop only for the products their customer base wants. Also, Smith suggests retailers stock “blind” items that customers cannot find at other stores. “With competition from Internet retailers, the entire experience must be there for consumers in your store,” he says.
(4) Truly sell what you stock. “I’ve been in operations in lousy locations with just OK visual merchandising that are making money hand over fist because they have employees who make customers feel welcome, and establish trust with shoppers,” says Smith. “From the minute the store’s phone rings or someone walks in the door, everything stops and the staff focuses on the needs of the shopper. The real money comes from a customer having a good experience in your store and telling others they should shop with you.”
(5) Reinvent before you discount. “When items in your store are not moving, the normal thought is whack 20% off and place them in the back of the store. Instead, why not try to reinvent the item and bring it out front. Add the item to a new display where it may have a fresh look,” says Smith. “Could this item be used in the kitchen and show well with a cookware vignette? Also, make sure shoppers are educated about the product. If an item is not selling, figure out its features and corresponding benefits to customers and make sure employees are armed with that information. With unique gift and home items produced by artisans, customers may not be aware of the story behind them. Little signs and stories give an item more cachet and can then command a higher price.”