Low margins are the result of a combination of strong and increasing competition, increased overheads in terms of labour, rent and marketing, and a relatively low rate of inflation, which in turn creates a natural reluctance to pass operating cost increases on to customers.
Improving Performance
Profit and margin levels are recognised as the key indicators of the health of a business. However, many businesses seem to confuse selling more (volume) with selling more productively (margin management), hence the continual cycle of sales, percentage discounts and ‘unbeatable’ or ‘unrepeatable’ offers. It is widely recognised that the majority of businesses have the potential to increase their operating margins significantly. This can be achieved by re-discovering some of the fundamental principles of effective retailing and performance management. Such principles seem to fade from memory as organisations become more sophisticated, and come to rely more and more on IT solutions to report retail performance, trends and profitability.
Here are seven key strategies through which performance can be enhanced:
Increase prices – It’s true that consumers are price conscious, particularly where high ticket, high profile products are concerned, such as refrigerators, TV’s and DVD’s. However, there is a limit to the price awareness of the average consumer.
It is universally recognised that consumers have an attention threshold and their impression of a store’s pricing overall is influenced by a small number of items which they use as a reference point.
The key is to remain price competitive in these reference points or base areas. Then develop improved margins in the accessory and add-on categories, which can be leveraged through a disciplined approach to the sales process – establishing the full scope of a consumer’s purchase intentions, and closing a ‘complete sale’.
Increase the average invoice value. Recognise the important role of sales staff such as “ can I help you?” are primarily transactional by nature and it is time for sales staff to build relationships with customers. In this way, we recommend staff deal with customers on a more personal level – introducing themselves by name, and seeking to identify the shopper’s basic purchase problems. In this way they need to engage customers in conversation in order to add value to the consumer shopping experience and identify additional sales opportunities. Through greater relationship building, sales staff can increase the average invoice value by identifying and recommending supplementary sales likely to yield higher margins.
Up-Sell to more profitable options or lines. Businesses should ensure their employees are operationally conversant with, and competent in, the principles and practices of profit and margin management. Do your employees have the skills – product knowledge, margin awareness, sales techniques – to move customers away from a basic purchase to a more profitable option? One business retailer makes things simple for their employees by discreetly colour coding products with an adhesive sticker according to their profitability, This ensures employees know which products have the best margins, and can take this into account when advising customers. A little training and creative assistance goes a long way in a low margin industry. Concurrently, retailers need to ensure that there is a real incentive for staff to identify up-selling and cross-selling opportunities with customers. Identify and reward sales excellence, don’t just assume it will happen!
Evolve your retail offer. Every retailer should be rigorously committed to identifying new product and service opportunities, based on customer feedback. Improving retail performance comes back to responding to what customers demand and responding with agility ahead of your competitors. The key to this strategy is identifying who your customers are and adopting advanced techniques for monitoring their perceptions, likes and dislikes. The best advice for retailers keen to improve their retail performance is to engage customers in regular conversation and survey them in intervals to guide your decision-making. You can use such information to get a better understanding of your customers, but also to develop a communication strategy with staff members concerning customer experiences – the starting point for a sales and customer oriented business culture.
Improve stock performance “If you haven’t got it in stock, you can’t sell it!”. Investigate your ‘stock outs’, and take action – don’t let poor performing suppliers off the hook, negotiate delivery quantities and times that are right for you, not just convenient for the supplier. Furthermore, maximise display areas in your store which are underutilised, unattractive or both. Recognise that window displays are vital to draw customer into your store. How often do you change your window displays? Are they creative, topical and visually attractive? Focus on refreshing your window displays every two weeks.
Drive operational efficiencies. There is often the opportunity within retail business to reduce operating overheads, even if only in small ways. Retail is a low margin industry, and every little bit helps.
Bulk buy consumables and consider cost effective ways to revitalise window displays and in-store ambience by using recycled and salvaged items.
Offer a prize of incentive for the best money saving idea from a staff member, and start to tap into the rich vein of employee contribution to drive operational efficiencies.
Improve the return of your investment in staff. Staff, although often your greatest expense, are truly your greatest asset, and, if properly managed and motivated, can contribute significantly to your profitability.
Focus attention on how well you schedule staff. Consider developing an agenda of business improvement activities to complete when the store is quiet.
Reward and praise sales staff for a task completed ahead of schedule and for achieving budgets both individually and collectively as a store. Remember your staff are the closest to your customers. They can develop relationships and encourage loyalty.
They can deliver peak performance and fantastic customer service, or, alternatively, simply cruise along and take an indifferent approach to sales and service issues.
Disclaimer: This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in this article is for guidance only and should not be relied upon without obtaining professional advice having regard to your specific circumstances.
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