It can make all the difference between black ink or red
By Gordon Hecht, YSN
The word “efficiency” sure has been getting a lot of attention these days. Turn on the 65-inch flat screen or scroll social media. It seems everyone has an opinion on it, good or bad.
Businesses, especially retail stores, need to operate at maximum efficiency, without sacrificing customer service. Costs are rising, foot traffic is down and EBIDTA margins are thin. Each revenue dollar needs to be protected to cover expenses, with a goal of ending the year in the black.
The last few years have seen countless retail store closings. Large chains and local mom-and-pops. Most of these businesses had loyal customers and raving fans. It wasn’t lack of sales that caused their demise, it was lack of profitable sales due to inefficiencies.
I’ve witnessed many store closings in my career in retail and as a business coach. I’ve also been able to save a few with course corrections. If your accountant is using more red ink than black, here are a few areas that may lacking.
Margins
We tend to hear “You can’t take margin to the bank” when goods are sold for less than asking price. There are also times to just take the money. But overall, your business needs to maintain a healthy gross margin over the course of a year.
Sure, discounting to capture a sale steals profit dollars. And while you may think of senior or military allowances as a public service, those 10% discounts cost you 20% or more of your gross. You may consider a set amount ($50 off per $1,000) or a merchandise credit before offering your next price break. Afterall, the best way to make money is to make money.
Toss it In
Another margin killer is free merchandise. In the bedding business it’s pillows or mattress protectors. In appliances it’s pigtails or ice-maker kits. For all of us it’s free delivery.
Every bit of merchandise and service you offer has a value. You need to get paid for it. Remember, when your customer gets something for nothing, you get nothing for something.
Rebates and Co-op
Many of your vendor suppliers offer volume rebates. Others offer co-op to pay for advertising. Each year millions of dollars on both go unclaimed. Every penny you collect increases your revenue. Often it is up to you to get your share.
Start by meeting with your vendor rep to cover and review the terms of your rebate and co-op programs. Next, have your rep walk you through the steps needed to collect the allowances. Co-op often needs pre-approval and billing documentation.
Filing for co-op takes time. You can increase efficiency by selecting advertising outlets that will file co-op for you. If you have to file for yourself, know that the 60 minutes you invest can pay off in thousands. That’s better than most doctors and some plumbers.
Warehousing and Storage
Start with this: no retailer should have a warehouse. That’s where you store merchandise waiting for someone to buy it. Every retailer should have a distribution center. That’s a place for goods to flow in and flow out, with just enough inventory on hand until the next possible shipping date.
Next, clear out any dead merchandise. Total the cost of damage, shrink, lost bank interest, occupancy costs and overparked, out-of-date goods. They lose about 3% of value every month. That’s more than a third of their value in a year.
Holding on to damaged or discontinued products is grossly inefficient. Convert that merchandise into cash you can invest in products that sell.
Monthly Costs
At home you understand that a 10-day TV streaming trial is a hook. You sign up for 10 days of “Love Island” and a year later you’re still paying $11 a month for an unused icon on the big screen.
Retail stores also may pay for subscriptions. Services that you rarely or never use. Check your ledger and spend a half-day wiping them out.
While you’re at it, revisit your internet provider contract. Are you getting the lowest possible rate? Is there a competing company offering a sweetheart deal for new subscribers? Same for cellphone service, window washing, vehicle maintenance, business insurance and uniform companies.
Often when those suppliers learn that you are shopping around, they will offer you a bargain just to keep you in the fold. Take whatever monthly savings they give you and multiply by 12. You will see that the annual savings can be substantial.
Cutting costs is a solid start to cashflow efficiency. Each opportunity needs to be pursued assertively and balanced against the effect on your customers, employees and bottom line.
While it takes time, effort and patience, the net reward is that your business will be around for years to come. And that’s the best service you can offer.
Gordon Hecht is a BrandSource advisor and YSN columnist with over four decades in retail and manufacturing and more than 500 industry newsletters and articles under his belt. His award-winning experience includes tenured time with Ashley Furniture and Serta Simmons, with progressive responsibility for large and small retailers. Got questions about your business? Contact him at (614) 537-5997 or gordon.hecht@aol.com.
