Good vs. Bad Retail Business Practices

Retail Best PracticesToday’s lesson is about breaking bad habits and replacing them with good ones. Life and retail are habitual; we tend to do the same things over and over, repeating daily, monthly and even seasonal activities. In retail, habits good or bad, make your store what it is. If you recognize what behaviors need to be changed, then even a small effort can create big changes.

Bad Business Habits

Stop blaming the economy and the competition. How is it that some retailers are thriving and growing in this down economy? How is it that some retailers thrive and grow in the face of fierce competition? They don’t let the economy or competition dictate how they operate their businesses. In tough economic times, these retailers pay attention to what made them successful in the first place. They leverage their strengths and eliminate their weaknesses, and they take steps to enhance and improve their relationships with their customers. Service is what makes or breaks the independent retailer. The big boys are understaffed, underpaid and underknowledged, and they are constantly losing touch.  Successful retailers understand that the economy and competition are out of their control, but what is in their control is the ability to enhance service and the desire to make their store the best that it can be.

Quit ignoring the obvious. If there are fewer customers coming through your doors today than there were last year, reevaluate your advertising and marketing. If the average sales transaction is decreasing, reevaluate your sales training techniques. What incentive plans have you put into place recently to reward your sales force? If profits are down, reevaluate your merchandise management approach and expense control. Significant change in the marketplace, the economy, the competitive environment, consumer buying habits, or anything else that negatively impacts your business requires a thorough reevaluation of the factors that affect and shape these changes. This reevaluation process is an important part of keeping every business successful.  Retailers go out of business because too often they didn’t adjust their strategy when things first started to change. Be objective, be realistic and tackle problems head on.

Stop thinking of marketing and promotions as an expense. Marketing and promotions are a necessary investment in your business regardless of the economy or other outside influences. Be pro-active. Drive the business. Doing nothing will get you exactly that in return. In store events, fashion shows, trunk shows, giveaways, get your vendors to participate; there is an endless list of activities to keep your store relevant in the future.   YouTube, MySpace, Facebook and even text messaging are clever ways of using technology to reach out to new and existing customers. A simple idea that too many retailers ignore are customer reward programs that encourage customers to come back and shop again. Successful retailers know that marketing, promotions and event planning are a critical and important part of keeping their store in front of their customers.

Stop coming to trade shows unprepared. For most independent retailers going to a trade show is the single most stressful event of the season. Often, just the traveling to the show causes stress. One way to relieve the stress is to come prepared. Remember the difference between buying versus shopping. Buying is the process we use to select products for our customers while shopping is what we do when we buy for ourselves. Knowing the difference is critical for success in retail. You are your customers’ eyes and you should have a clear vision of what is important to your customer as you prepare to shop the show. Walk the entire show before you start placing orders, and stop using the vendor purchase order forms. Use your own purchase order as it has your own terms of doing business and your cancel date and other requirements of doing business with your store; the vendor form is built in their favor, not yours. Lastly, stop accepting too big of a shipping window. An order that comes in between August 1 and October 31 is unacceptable. Make sure that every order clearly states delivery date and a cancel date no more than 30 days after the scheduled delivery date.

Stop overbuying. Stop purchasing more inventory than your traffic can bear. The key for independent retailers to weather these turbulent times is to adhere to basic retail fundamentals. The most basic of which is to buy only what you can sell profitably. In this environment, it’s near impossible to simply sell your way out of over-bought and over-stocked situations. Today, top line revenue stubbornly doesn’t want to turn up. Many stores report that the weakness they’ve experienced has been primarily in traffic counts, and to a lesser extent in units per transaction. The key is to keep inventory levels in line with realistic sales forecasts. Excess inventories in a weak sales environment back up very quickly which creates enormous markdown pressure that is far beyond any markdown pressure you might feel from the competition. Those markdowns destroy gross margins.

Also, many independent retailers feel they have to commit all of their dollars upfront in order to get the merchandise they want. It’s far better to hold dollars back, and flow merchandise out through the season as close as possible to the time of expected sale. That way inventories remain lean, customers are always seeing fresh arrivals, and there’s cash to spend on long-margin opportunity purchases late in the season.

Good Business Habits

Increase cash flow. Your number one priority is to increase cash flow. Strong positive cash flow is truly a competitive advantage. Thinking about inventory in terms of time is the essential starting point in effectively managing inventory and experiencing healthier cash flows. For many retailers, thinking of inventory in terms of weeks supply or months supply is a new concept. They can easily talk about inventory in terms of quantity, units, dollars, cases or case packs and they have heard of terms like inventory turnover GMROI without fully understanding what it means. This perspective on cash flow is ironic because I find that retailers who can’t answer the how many weeks or months supply question are the same retailers that also experience recurring cash flow problems. Remember this important retail metric.  For every week you can improve your annualized inventory sell through, you improve cash flow by approximately one percent of annual sales. We sometimes hold on to the mistaken belief that maximizing sales will lead to maximizing cash flow. Not true. It is optimizing turn rates that ultimately will lead to a healthy cash flow and increased profit in your stores.

Take a critical look at every expense. This is one of those things the best retailers constantly do. When times are good, it’s quite easy for expenses to creep up and get out of hand. Rather than cutting costs across the board, here’s a simple way to look at expenses.

Don’t spend money on anything that doesn’t do at least one of these four things:

1. Get more customers through your door.

2. Better serve your customers

3. Support your associates

4. Directly help grow and improve your business.

Every other expense should be carefully scrutinized.

Start negotiating. More so than ever before, both landlords and manufacturers are willing to work with their independent retail customers who they have a history with and good credit in the marketplace. Prior to this, being a partner often meant: give me what I want and I’ll be your partner. Recently, the term “partner” has acquired a more authentic meaning. Due to current conditions, retailers are holding back from opening additional stores at this time, and even closing stores. Vacancy rates are up. Traffic is down. Landlords have fewer candidates for the vacant space they have in their centers. As a consequence, independent retailers who do want to open stores have less competition for leased space and are able to get more affordable rents, better locations or both. Today, independents are successfully negotiating advantageous new leases, lease renewals, rent reductions and spec reductions.

With the manufacturers, try to get as much as you can when you are preparing to buy. Remember, the vendor is never more accommodating than when you are standing there with your pen in hand. A few things to negotiate for:

1. 60+ day payment terms

Plus 30 day terms from the day you receive the merchandise, not the shipping date

2. Pre-paid shipping

3. No pre-approval for damage / defective returns and full refund (not credit note)

4. Co-op advertising

5. Guaranteed repeats

6. Free goods for display

7. Guaranteed sales: 90 days

Start training your sales force and providing them with incentives. The problem with many independent retailers is that they simply don’t have expectations for sales production. They say, “Here’s what you have to sell this week or this month to keep your job.” Essentially these retailers put people on the floor, pay them an hourly wage and hope they sell. Then there are the retailers that have some concept that people want to make more money. So they put in an incentive program and start paying commission.

The problem with that strategy on its own is that it does not give salespeople skills to succeed or the tools to measure their progress. How people behave on the sales floor is related to how they are trained and managed, not how they’re paid. Stop settling for mediocrity. Get everyone on your staff professionally trained. Turn your staff’s “helpfulness” into high performance selling. Set accurate and objective sales goals. Make sure your employees are making enough add on sales. Understand the new sales metrics and how they impact sales. These are behaviors and they require that you have weekly coaching meetings with your sales staff. Establishing Esprit de Corps results in better customer service and higher sales. Good managers and salespeople that provide a high level of customer service and close more sales at your stores can change the culture of your business into a high performance machine.

Keep challenging yourself and your associates. Even in difficult economic times, the best retailers take bold steps to distance themselves from the competition. They continue to identify and take advantage of the opportunities that are always there even in a competitive environment and a tough economy. Retail may be the toughest profession out there but, there’s always room for those who get it right.

Ritchie Sayner is VP of Business Development at RMSA Retail Solutions …follow him on Facebook at  or email at

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