Economic slowdowns and the sluggish business conditions they bring also represent opportunity. It’s a chance to reassess what you do and how you do it. If you’re not as busy as last year, why not use the time to re-evaluate your operation? Think about how you attract new business; how you go about merchandising and marketing. Do you close up early on the weekends-and thus lose out on what could be the busiest time of the week? You have probably had changes in mind for some time, but as we all know, change sometimes comes hard.
So at a time many of you are seeing a fall off in residential sales, I am offering a few basic challenges. Here are four areas that you should take a close look at:
Early on in my career as a consultant/educator, I had the opportunity to survey the builder business of several retailers. The findings were enlightening: Not one was making money. In many cases builders accounted for 50% or more of the business. Some of these retailers were selling flooring to them at a 20%-25% mark-up. Builder business is alluring. It takes little skill to sell and the business is steady. But it goes downhill from there.
In the retail lexicon mark-up is the percentage on selling price. For instance, a 40% mark-up on a $6 item is $10. If you add on 40% to $6, which amazingly some retailers still do, the selling price is only $8.40 or a 30% mark-up. A bright young lady who had only been in the business for a short time was talking with me after a seminar. She stated that her profit was 45%. During the conversation, it was apparent she was only adding 45% to the cost. Her husband had been in the business for a lengthy period of time and still didn’t understand mark-up. “No wonder we aren’t making money,” she exclaimed.
Anyway, the average flooring retailer’s expenses average around 28% of sales which means that if you make any sales below that percentage, you are losing money. Remember, 20% to 25%, even if you understand mark-up, doesn’t make it. Moreover, many of these builders are not organized and may not be ready when your installers show up. Who pays for these extra trips? The same builders may even allow other trades to work over your newly installed flooring. Guess who has to make good on the damages? Many builders can’t pay their bill until they sell the house-and these are the better ones. Others keep retailers floating through one or two more developments. The extra costs can be crushing.
Even when confronted with these facts, many retailers can’t give up the business. Psychologically, they love the huge volume these customers provide. It can be an emotional lift and it keeps them busy, but they are in effect making the choice to lose money. This is not to suggest there are no good builders, but the top builders tend to require other services such as interior design expertise. A retailer who took over her father’s store told me that 50% of the business was from builders. She dropped the builders, cut the business in half and made $13,000 more that year.
Sales and Store Hours
You don’t have to be a retailer to know that in most families, both parents work. So, why then would any store close before 6 p.m.? That makes no sense. If you use a sales patterning book, an indispensable tool that every professional retailer uses except in our industry, it would tell you that the bulk of Saturday business comes in the afternoon. It also tells you that Saturday is the biggest day of the week. Then why do the vast majority of small retailers close at noon on Saturday? (I cover this in my book Warren Tyler on Retail.)
Some retailers say they stayed open later Saturday and even tried Sunday hours, but didn’t do any business. That is understandable. It takes a few months before your market recognizes you keep evening, Sunday and Saturday afternoon hours. Another excuse: “My people want their weekends off.” When you hire, make it perfectly clear that retail stores operate when most other people are off-and that includes holidays. It is not a request; it is a condition of employment.
On my way to my wife’s store in southeast Virginia this New Year’s Day, I was astounded that every flooring store I passed was closed. Traditionally, Jan. 1 is the third biggest sale day in flooring- if you open. Her store, which she opened in 2006, is small, yet from noon to five she did $17,000 with a 50% margin. If you don’t market yourself during the proven consumer buying periods using appropriate ads, you are losing 40% or more of high margin business. If you are too good to have a sale, you may be too good to make money.
One thing the old national chains (not the retail groups) did well is show large samples, actually 27” x 54”. Even cheap carpet looks better this way. Still, sample sizes have been steadily shrinking. As most people know, I am a champion of the retail groups, but my one disappointment has been with their sample merchandising. They are terrific in redoing the looks of the showrooms, but they seem to miss what consumers really want to see when they visit your showroom.
Whether it is a retail group, a manufacturer’s group or a fiber producer’s group, the trend is toward displaying more merchandise in smaller samples. I admit, overall these showrooms look terrific, but at what cost? Consumers tell us they don’t make a purchase decision based on a broader selection or even lower price. They buy because they like the salesperson. I call it “The Art of Being Liked.” Personal human skills are far more effective than marketing.
I don’t know anyone in this industry who could compare to Stanley Marcus, the late chairman emeritus of Neiman Marcus Stores, when it comes to retailing. It had more to do with their approach to retailing. In his book, Selling the Best, Marcus says the broader the selection and lower the price, the lower the sales. Conversely, the more concentrated the selection, the higher the price, the higher the sales. In other words, it’s not how much you display; it’s how well you display.
Customers want to see our products displayed exactly how they are to be used in the home. This is why furniture galleries are so popular. The consumer can get confused by tiny swatches. She wants to see room settings. If you don’t have entire rooms to display flooring, build vignettes which are literally small portions of rooms. The average showroom has room to display their top sellers in every flooring category. The minute you add a vignette, you can see the impact. Customers will bypass the beautiful furniture style sample racks and walk directly to the vignette. Often, these vignettes can be built and sampled per line less expensively than it takes to purchase samples.
We often hear that Wal-Mart and other Big Box stores are killing small businesses. Not true. It’s actually small businesses that are killing small business. A flooring retailer, for example, may decide not to deal with unreasonable or highly demanding customers. That’s their right. But isn’t it strange that the biggest retailers do not share this mentality. Even with their billions of dollars in sales, they want every customer they can get. Small independent retailers who may not have two nickels to rub together somehow believe they can afford not to deal with them. It makes no sense.
For over 20 years now, consumers who once preferred to shop locally now favor the large national stores. That is because these large retailers embrace Marshall Fields’ proclamation: “The customer is always right!” Small retailers only believe that is true if she actually is right. Right or wrong, one dissatisfied customer tells many others. It can kill your business.
When was the last time you went to a retail store and enjoyed yourself? A long time ago, I reckon. Shopping is fun and buying is even more fun, but they can’t have fun if you employ “drones,” that is people who seem to have undergone a personality bypass. Get rid of them. (They can always go work at the Motor Vehicle Bureau.) Did you hire these people simply because they need a job? There are plenty of passionate, enthusiastic, high energy people who are looking for a place where they are appreciated. Develop a culture of people who enjoy helping people and have fun making customers feel good.
Hire people who truly love people. People who can reach out and offer the same love and respect that lesser people can only give to friends and family. You need people who can’t wait to see customers come through the door, so they can say, “Welcome to Carpets Plus” and really mean it. Most customers will respond with a “Thank you!” If they don’t, welcome them again and then they will respond.
Teach your people that the way to get close to shoppers is to start talking about anything except what you’re selling. It works like magic. People buy from people they like. Have events at your store-The Easter Bunny, Santa. Offer refreshments and coffee (my wife freshly brews Starbucks) and always have gifts for the kids printed with your store information-Frisbees, balloons, hula hoops. Remember, “Seriousness is the only refuge of the shallow.” When you use human skills to get close to customers they won’t even consider shopping around.
The most important selling tool is personality. With business soft these days, your people have to convert more shoppers into buyers. But that’s a simple premise. Usually the customer comes into your store wanting to buy so badly, she’s breathing hard. The only way to force her out of the store is to have disconnected, uncaring drones. It only takes one to poison the culture. One of the great business books of the day strongly states, “Get them off the bus.”