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Be Yourself, Be a Unicorn!

I love those signs that say, “Be yourself. Unless you can be a Unicorn. Then be a Unicorn.” (Substitute Batman for Unicorn for those who identify that way.)

Be yourself is the best advice I could ever give to any business owner. Know your Core Values, what drives you in your life, and be them so clearly and proudly that everyone knows exactly who you are.

Those who share your values will become lifelong fans and evangelists of your business. You’ll always have a core of supporters.

HABA USA Unicorn Rainbow Beauty

To truly stand out in retail, however, you also have to be a Unicorn. You have to be so different from every other retailer that people believe you to be magical.

I say this in light of the article that came out last month stating that the Retail Apocalypse is still upon us with over 5800 stores closing in 2019 alone (and that’s only through March!)

Before you panic, 2,500 of those stores are Payless Shoes. Another 390 are Family Dollar stores closing after Dollar Tree bought them out. Other big chains with big closures include The Gap, JC Penney’s, Chico’s, and Gymboree.

None of those stores were Unicorns. 

The Gap was the closest, but no one under forty remembers when they made their splash on the retail scene. Their horn fell off decades ago.

The culprit most often blamed is Amazon, followed closely by Millennials. While Millennials probably had a lot to do with Victoria Secret closings (Hey, VS, have you noticed society has mostly shifted away from your idea of sexy lingerie?), they and Amazon are more symptoms than causes of retail store closures.

The real culprit is the stores themselves.

Chain stores are dropping like flies and they only have themselves to blame.

First, we are over-saturated with retail to begin with. Too many chains competing for not enough dollars. The chain stores work on the premise that the more stores they have, the more revenue they would be able to collect to “make it up with volume” which led to rapid growth and expansion well beyond what the market could bear.

Second, these stores invest next to nothing in training for their managers and staff. A couple of my former employees went to work for chain stores and showed me their employee handbooks. Sixteen pages on how to use the time clock and what will happen if you get caught breaking a policy, but not one word on how to create a relationship with a customer or even how to sell.

Third, there is little to differentiate one chain from the next. They all have the same merchandise from the same manufacturers. They all have the same lack of service that begins at the top with poorly trained managers who know nothing about team building, HR, or how to teach and motivate others, let alone how to merchandise and run a customer-centric store. They all fail to grasp how much of the population has moved on from the materialism in the 80’s and 90’s to more sustainable approaches to life. They all think big discounts = loyalty. They all chase the shiny new baubles like omni-channel, big-data, BOPIS, and social media, thinking those will be the big fixes that will help their businesses.

Nothing about any of these stores is or was unique, exciting or magical.

The downside for you is that all of these lousy experiences in other stores are driving customers online and making online shopping more prevalent and convenient.

The upside for you is that it is much easier to become a Unicorn of a store than ever before.

The bar is so low now that stores that care about their customers through their actions and policies stand out like lighthouse beacons on a desolate ocean of crappy retail.

Toys R Us is the only chain store closing where I actually heard customers lamenting the loss. No one is lamenting Payless going away. No one will even remember Charlotte Russ stores once they’re gone (if you even knew they were there). Heck, most people thought JCP was already closed!

Be yourself. But be the most Unicorny version of yourself you possibly can. Amazon is the default when you don’t give your customers a reason to believe in the magic.

-Phil Wrzesinski
www.PhilsForum.com

PS If one of your Core Values is Nostalgia, celebrate those nostalgic moments in your customers’ lives with gusto. Ring a 32-pound brass bell on their birthdays and put their picture up on your wall. If one of your Core Values is Education, hit the road and do Free Classes on how to better use the products you sell. If one of your Core Values is Helpful, have a high school kid with a golf umbrella escort customers out to their cars on a rainy day.

PPS If you aren’t well-versed in Team Building, hire someone to help you build your team. (Note: check your local YMCA or Y-Camp.) If you aren’t well-versed in motivating your employees, I suggest you read Drive by Daniel H. Pink or Maestro by Roger Nierenberg. If you aren’t as good at teaching the sales process as you’d like, check out my Free Resources – The Meet-and-Greet, Close the Sale, and How to Push for Yes. The resources are out there to help you grow your horn.

Making the “Experience” Over-the-Top

Last night my bracket got busted. As a diehard University of Michigan Wolverine fan, my NCAA tournament bracket lasts until the Wolverines bow out. (I know, I know. I shouldn’t always pick them to win it all, but then I would have to root for them to lose, and I can’t do that.)

Brackets for the NCAA tournament are fun. They are also an easy tool to implement for a promotion or event in your store.

One year we had a “March Games Madness” where every Friday at Game Night we played four games and voted on the best. After four weeks we had a “Final Four” and in week five we crowned a champion. We had brackets for people to fill out and seedings for the games. Not only was it fun and attracted a decent (and returning) crowd, it gave us fodder for social media marketing. (This game is a “Final Four Game.”)

Another year we set an unofficial world record for having the most people playing the game Snake Oil at one time.

At a Breyer Horse event we had a stick-horse obstacle course complete with a bale of hay and a water element.

For our Disney Princess Day we had a quartet from the local symphony play Disney songs on our stage.

Go big or go home.

Put some kind of Wow Factor into your events and two things will happen. First, your events will get customers talking about your store, coming back more often, and bringing their friends with them.

Second, and more importantly, you will separate yourself from the influence of negative experiences at other brick & mortar stores.

It doesn’t just have to be an event, either. Go big in other ways. I knew a jewelry store that had a $30K diamond engagement ring and special “throne” to sit in to try it on. I just visited a toy store recently with an eight-foot tall Steiff giraffe that sells for $20K.

Take the money from your advertising budget if you have to for a splash item because that’s what those two pieces represent.

Go big in your services, too. Serve food/drinks. Have valet parking. Do a coat check. Have expert demos. Have someone with a large golf umbrella walk customers to their cars on rainy days.

Those are the actions that set you apart, that insulate you from being lumped in with all the other retailers out there. Your toughest competitors now are not the other stores that sell what you sell. Your toughest competitors are the horrible experiences people have at other brick & mortar stores that keep them from shopping in any brick & mortar.

Set yourself apart and you become a category all to yourself, insulated from those negative experiences that drive people away.

-Phil Wrzesinski
www.PhilsForum.com

PS Actions speak louder than words. Do these things. Don’t advertise these things. Talking about them makes them less special. Just doing it and letting your customers talk about it is what sets you apart. (Yes, you should advertise your event, but don’t give away all the surprises in how you’re going over-the-top. In time, your customers will be showing up just to see what crazy stunt you’re going to pull off this time.)

Upgrades Versus Shifts – Choose Wisely

Back in the 1990’s we had four big spiral notebooks on a table in the office. I’m talking huge, four-inch-wide, thick plastic covered, heavy-duty spiral notebooks. They contained our Inventory Sheets and tracked all the inventory in our store by vendor, item number, and price.

My dad created these sheets. Designed them himself and had them printed by the ream. There was a stack of blanks in the office right up until the day we closed.

These sheets were awesome for tracking purchase orders, receiving, and sales. If you wanted to place a new order, just do a quick physical inventory of that vendor, enter it onto the sheet and you could see what we had sold and needed to reorder.

That’s my dad with some old school cash registers behind him

Prior to the computer, this system was a godsend for us to keep track of 500 plus vendors and 30,000 skus. After the computer it was a relic.

When we switched to our second computer system in 1998, the inventory sheets were completely obsolete. My dad held onto them until he retired, but the computer streamlined the process so much that the sheets became a waste of time. In the old days it took my dad three days to write a Mattel order. With the computer I could do it in under an hour.

Sure, there was a learning curve to the computer. But the end result was a huge savings of time and resources. It was a major Upgrade.

I’m going through another form of Upgrade in my new job. Today I have been learning how to use Microsoft Teams. In my role I have to communicate with several people about several issues all day long. Often I have found myself sending out multiple texts and emails to try to stay in touch and get info. Teams is going to help me keep that organized and eliminate a lot of the time I spend tracking down old email threads, texts, and contact info.

Sure, there is a learning curve. But I can already see the end result being much better communication and less time spent tracking down information. Pretty soon it will be as natural to me as sending out a text or sharing something on Facebook.

Upgrades exist to make your life easier in the long run. 

That is the important distinction. If you look beyond the short-term pain and see the long-term gain it is an Upgrade. If there is no gain, it isn’t an Upgrade, it is merely a Shift.

Shifts can be dangerous. They often are sold as Upgrades because of their newness. They sometimes masquerade as Upgrades because of new features they offer that you’ll never use.

Just like the Upgrade, they take up a lot of time and money at first, causing a lot of short-term pain. Unlike the Upgrade, they have no long-term gain. They only move your resources from one place to another.

You’ll see these Shifts most often in advertising. Online advertising, social media advertising, and mobile-marketing are all Shifts, not Upgrades.

The best way to avoid Shifts is to ask this most important question …

Will this shiny, new tool save me Time or Money?

If you cannot answer Yes, it is most likely a Shift, not an Upgrade, and probably not worth your limited resources. Now you know the difference.

-Phil Wrzesinski
www.PhilsForum.com

PS Sometimes you have no choice but to make a Shift because the old way is obsolete and no longer available (think credit card chips). Hopefully you can find a new way that also brings you a benefit (like Apple Pay capabilities.) When someone pitches you a shiny, new tool, ask yourself if it is merely a Shift or truly an Upgrade. Always wait for the Upgrade.

Different Eyes See Products Differently (And That’s Okay)

I got a new laptop. While I was preparing to transfer files from the old laptop, I figured now was a good time to purge. I went through all the document files one by one, deleted all the duplicates, consolidated all the pictures, and opened up files I haven’t seen in over 10 years.

One of them was a staff meeting idea. The concept was to flash certain words on a screen and have everyone write down their own definition of the word. Some of the words would be applicable to our situation like “service”. Others could be words that have dual meanings to begin with like “experience” (noun or verb?). The point of the exercise was two-fold. First, we would see how different people interpret words differently. Second, I would see how the members of my team interpret important words like service.

We all come from different backgrounds with different life experiences, so we see and interpret things in our own unique way.

Never was that more apparent than at Toy Fair last week.

My retail customers came in looking at our brand new offerings. For everything I showed I had some retailers who loved it, some who hated it, and some who just said, “Meh.” Not everyone who loved it, loved it for the same reasons. Nor did those who hated it, hate it for the same reasons. In fact, I had one retailer give me a reason for loving an item and another gave me the exact same reason for hating an item.

Just because the first customer who sees your new offerings hates them doesn’t mean they are bad.

Just because the first customer who sees your new offerings loves them doesn’t mean they will do well.

I missed one of the biggest fads of the last two decades in the toy industry. It was Webkins. I loved the toy. Loved it so much that when it was first introduced, I bought the display and the TV monitor to show the video of how it worked. Got it in August. By December 1st I had only sold 2 of 144 pieces. That night I clearanced them all at 50% off.

Do you know when the craze hit? December 2nd. The first customer of the day walked in and asked, “Do you have any Webkins?”

She bought six. By the end of day on December 4th we were sold out. I never reordered and never looked back.

Some of the negative feedback we got in the booth was really good. It was constructive criticism of things we can (and will) change. Some of the positive feedback was location-specific to the person and store giving us the feedback. Knowing the difference and knowing how to decipher the feedback you get goes a long way.

“You are not a hundred dollar bill. Not everyone is going to like you.” -Meg Cabot

We all see the world differently. When you look through the other person’s eyes, however, you see things in a whole new light.

-Phil Wrzesinski
www.PhilsForum.com

PS Normally I like to give you something concrete to do in these posts—an action step or two. This post does not. But it does set up the next couple posts where I’ll try to show you what happens when you look through someone else’s eyes. It will transform your marketing & advertising, your customer service, your staff training, and even your merchandising. Stay tuned.

Don’t Just Go With the Tide

If you have ever studied the topography of Lake Erie, you’ll know it is one of the shallowest of the Great Lakes. It is shaped much like a swimming pool with a shallow end to the west (25-30 feet deep) and a deep end over near Buffalo, NY (210 feet deep).

When the winds come strong out of the west they blow that shallow end all down to Buffalo. Storer Camps used to have a sailboat docked at a marina on the west end and some days the boat would be resting on its keel at the dock because the water had drained completely out of the marina and blown east.

All boats rise with the tide. But also all boats fall.

Your business rides on several tides.

There is the tide of the economy. When the economy is booming, even the mediocre retailers can make money. When it is in the dumps, only the smart retailers who shored up their business rather than just rising with the tide are making any money. (This affects you both locally and globally.)

There is the tide of your sales team. The worst person on your sales team is blowing all the water to Buffalo. Hopefully you have enough good people pushing the water back.

There is the tide of products. A good fad or hot trend can fill the marina fast. You just never know when it will drain.

There is the tide of demographics. As they grow, so does your sales, but as they grow, so does your competition. The competition just doesn’t wash away as fast as the demographics might.

People who live or work along the shores of the Great Lakes and the coasts pay close attention to the tides. Their tides are predictable.

Your tides are not.

But you still need to be paying attention to them.

Are you tracking the local and global economy and adjusting your inventory to match?

Are you measuring your sales people and training up the lower producers?

Are you following the trends in your industry and comparing them to past trends to see how your store fares with each passing fad?

Are you measuring the demographics and watching for any major changes and how those would impact you?

All boats rise with the tide, but only the smart boats know when to set sail to take advantage of the rising (and lowering) tides.

Sometimes it is best to set sail and go get those sales before the tide falls too far.

-Phil Wrzesinski
www.PhilsForum.com

PS I’m channeling my oceanography degree and sailing background for this post. Just remember that when you’re rising, so are your competitors. In a sailboat race the lead boat always wants to do whatever the trailing boat does to keep that boat from gaining. The trailing boat, however, has their best chance to overtake the lead boat by following a different path.

(Repost) What to Do with the First Quarter Blues

(Note: this is a repost from March 2, 2018)

I went for a walk/jog down the Falling Waters Trail a couple days ago. It was sunny and in the mid-50’s. My dog, Samantha, and I enjoyed getting out of the house. There is something about those early spring days when you get that sense of renewal, that rebirth of energy. Of course, today, I stare out at five inches of snow courtesy of our bipolar vortex. Just when you think you’ve turned the corner on winter, Mother Nature smothers you with another blanket of white. So much for that rebirth of energy.

It’s easy to get the blues.

Image result for cabin fever clip artEspecially if you’re a fourth-quarter retailer. January feels like a relief from the exhausting marathon of Christmas. But by February, when the bills have all been paid and it doesn’t seem like any new cash is coming in, it gets to be a drag.

If you’re a jeweler or florist, you get Valentine’s Day. If you’re a toy retailer or candy shop you get Easter. But that isn’t a lot to carry you through the First Quarter Blues.

Here is a list of different things you can do during the quiet times to combat the blues.

  • Paint the store. A fresh coat of paint brightens the mood and lifts the morale of the staff.
  • Re-do all your signs. Print new ones, change wording, make them more fun and in alignment with your Core Values.
  • Work on new selling techniques. Hold trainings, do role playing, practice new techniques.
  • Make displays for out-of-your-category gifts. For instance, January-March are big baby shower months (no one wants to hold them in November/December because of the holidays). Put together an endcap of great “baby shower” gifts – even if you don’t sell baby products! A hardware store could do a display of “build your nursery the right way”. You could also do “gifts for the mom/dad-to-be.” Get creative. The same is true for weddings. The bridal shows are January-February. Bridal showers are March-June. Put together “bridal/wedding gifts” like board games if you’re a toy store (the family that plays together, stays together), or tool kits. I got a drill as a wedding gift from a thoughtful friend.
  • Get creative with your social media. Post often about a wide variety of things (not all related to selling your products). Have a contest among your staff. Make them all admins. Allow them two posts a day. See who can get more comments and shares in a week. Pay the winner $20. Do it for five weeks. It will be the best $100 bucks you spend on social media this year because you’ll see what kind of posts move the needle.
  • Have a contest of some kind. Maybe a raffle for charity. Maybe a “taste-test” where you put two competing products side by side. (I can see this for tools, for toys, for shoes, for cleaning products, for foods, for strollers …) Maybe a competition. We did a five-week March Games Madness where we pitted four games against each other for four consecutive Friday nights. The game voted the best each week made it to the final four. The fifth week we crowned the champion.
  • Spend more time networking. Send everyone on your team to different networking events.
  • Rearrange the floor layout. Stand at the front door and look around. See what catches your eye. Redesign the store so that your customers can see farther into your store. And make sure something cool and compelling is in those sight lines.
  • Clean and fix everything. Everything.
  • Make your bathroom cool. When George Whalin wrote Retail Superstars: Inside the 25 Best independent Stores in America, he mentioned the really cool bathrooms for 14 of the 25 stores.
  • Make a list of your top 50 or 100 customers with phone numbers. Assign them to your staff to call each person and personally thank them for shopping in your store. No sales pitch. Just a simple, “I want to thank you for being a customer last year. We truly appreciate your business. Have a great day!”
  • Make a goodie-bag for those same top 50 or 100 and personally deliver them. Free. No questions asked. (Thank you Brandy & Eric for this idea!)

The customers will be back soon enough. You have new products rolling in. Take this time to plant the seeds for future sales by refreshing the store, training the staff, and getting creative with your marketing.

That’s how you beat the First Quarter Blues.

-Phil Wrzesinski
www.PhilsForum.com

PS I would love to hear your suggestions for additions to this list. I know there are some really good ideas out there. Help me share them with the world.

How Much Would You Pay?

Have you ever walked through a store, saw a display, and thought, “Wow! Someone would actually pay that much for that?” Of course you have. We all have. It is the internal pricing game we all play called …

“How Much Would You Pay?”

Unless you’re the only option in town, pricing is a game of finding that sweet spot in price that matches the answer most people would pay for your product or service. The better you determine that price, the better your sales and profits.

And before you think that lowering the price is the only way to go, remember that some people will look at a really low price and think, “What must be wrong with it?” You can cheapen the perception of your products or services by pricing them too low.

I knew a guy who sang at events. He was getting tired of the gigs. He asked me if I thought it was smart of him to double his price so that he would get fewer gigs and still make around the same amount of money. I told him to expect the opposite to happen. I was right.

His bookings doubled with the doubling of his price because people figured if he charged that much he must be really good. In other words, his earlier price was too low. Fortunately, the extra bookings along with the higher price re-energized his career.

I call this concept Perceived Worth. It is something we all do when shopping. We look at an item and determine its Perceived Worth (PW). Then we look at the price. If the price equals the PW and we’re in the market to buy it, we place it in the cart. If it is too high or too low, we hesitate. We won’t make the purchase until we can justify the price discrepancy.

If we don’t need the product, our PW for that item is zero, and we move on, but we’ll still play the Pricing Game to see if what we would expect to pay matches the price.

I NEED YOUR HELP

I tell you this because I would like your help on the PW of a service I have been asked to perform.

You may recall a couple weeks ago I gave you five Self-Diagnosis Tools to help you take a critical look at your business. Those tools were:

I was asked what it would cost to hire me to come to a business for three days to perform those five diagnostics.

I would like to know what you think the Perceived Worth would be to have someone like me do a complete diagnostic evaluation of your business using those five criteria.

I would visit your business for three days. I would need access to your financials (Balance Sheet and Profit & Loss plus your Average Inventory at Cost). I would need to see what Advertising you have done (and any contracts you’ve signed for advertising). And I would need a couple hours of your time over the three days to answer questions here and there.

At the end I would write up an evaluation showing where you were doing well, where you needed attention, and recommendations for what to work on next, including a priority of where to put your resources first.

Two Questions:

  • What would you EXPECT to pay for such a service?
  • What would you be WILLING to pay for such a service?

I am curious to see your responses. You may send them to me via email or PM, leave a comment on this blog, or comment on Twitter, LinkedIn, or Facebook.

-Phil Wrzesinski
www.PhilsForum.com

PS Even if you don’t own a business I am curious to see your response. I am trying to gauge whether there is a viable market for this service or not. I’d love to know what people perceive such a service to be worth. There are no wrong answers.

Self-Diagnosis Tool #5 – Marketing & Advertising

My favorite class segment in the Jackson Retail Success Academy was always the Marketing and Advertising Segment. One portion of that segment was dedicated to Media, Myths, and Money. We would discuss all the various forms of media and how/when to use them properly. We also discussed several myths about advertising. One of the biggest myths was this …

Advertising will fix your business.

No it won’t.

If your customer service sucks, advertising will only draw in more people to find that out and tell their friends to beware.

If your product selection sucks, advertising will only find you more disappointed and empty-handed customers.

If your market isn’t big enough to support your business, advertising will only drain your coffers faster, and hasten your demise.

That is why, of all the Diagnosis Tools, this one is last.

Abandoned Boat on the Pond by the House

Think of your business like a boat. Your Core Values are the hull and body of the boat. Your Market Potential is the size of the body of water. Customer Service is the driver of the boat. Inventory is the engine/oars. Advertising is the launching of the boat. Would you launch if you knew you had a leak, didn’t have a driver, or had an engine not working? Of course not.

You need to make sure your boat is rock solid and ready to go before you launch. (Check out Tool #1 Core Values, Tool #2 Market Potential, Tool #3 Customer Service, and Tool #4 Inventory Management if you think your boat has even the tiniest of leaks.)

Advertising will not fix your business, it will only speed up what was going to happen anyway. If your boat is leaking, advertising will just sink you faster.

DEFINE THE TERMS

First, let’s understand the difference between “Marketing” and “Advertising”. Marketing is everything you do to attract customers to your store. Advertising is a subset of Marketing. It is the paid marketing you do through a form of media.

MARKETING

Marketing includes your building, your signage, your front door, the “Open” sign on your building, the events, activities, and classes you hold inside and outside your building, the networking you do by joining clubs and being involved in your community, the free publicity your garner, etc.

One of the first steps in this self-diagnosis is to list all of the ways outside of Advertising that you are Marketing your store. For some ideas of different things you can do, check out the FREE eBook Main Street Marketing on a Shoestring Budget.

You should have a healthy list of ways you are marketing your business outside the realm of traditional advertising. Fortunately most of these ways cost more time than money. If you don’t have enough customers—the whole reason you’re marketing your business—then you should have the time.

Once you have that list, see which Core Values are evident in each activity. All of your Marketing efforts must be aligned with your Core Values to be most effective. If there is anything you are doing that doesn’t speak to your values, change it or drop it for something else.

ADVERTISING

The next thing to do is to look at your paid advertising through the same lens as your other Marketing efforts. Pull out all of the ads you ran last year. Look closely at the message you sent. Ask yourself these six questions …

  • Does it look or sound like an ad? Chances are good that it does. Did you know our brains are hard-wired to ignore advertising? Maybe you should create something that doesn’t look or sound like an ad to keep from being ignored.
  • Does it tell a story? Stories are more interesting, get people to pay attention, and are more memorable than facts and figures. Your ad needs to tell a story if you want it to work best.
  • Does it make only one point? The person seeing or hearing your ad will only remember one point at best, so only give her only one point to remember.
  • Does it speak to the heart? Emotions always trump logic. Always. What emotion does your ad invoke?
  • Does it speak to your tribe? Does it align with your Core Values? If you want to attract better customers, speak more directly to those people who share your values and ignore everyone else.
  • Does it make your customer the star? Ads about you will be ignored. Ads about your customer and what you can do to help her will gain her attention.

The message is more important than the media. Here is another big myth in Advertising …

You must reach the right people.

Nope, nope, nope, nope, nope. You can reach all the right people but if you don’t say the right thing, all is for naught. Also, everyone you reach is potentially the right person because even if they aren’t your customer, they know someone who is your customer.

It isn’t who you reach that matters. It is what you say to the people you reach.

Get the message right and everything else will follow.

(Note: to help you choose the right media for your business, go to the Advertising Media Reference Guide and check out your options.)

BUDGET

The last thing to check is your budget. How much should you spend on Marketing? Notice how I said Marketing, not Advertising? Part of your Marketing is your location. If you spend a lot in rent to be in a high-traffic area, you don’t have to advertise as much as the guy under the bridge on the wrong side of the tracks. The Cinnabon store at the airport doesn’t spend a penny on Advertising. He just bought a fan to blow that cinnamony goodness out into the terminal. That’s his Marketing Budget.

There are many formulas for calculating a budget. The one I like best came from Roy H. Williams, aka The Wizard of Ads. He suggests you take 10-12% of your Gross Sales as your “Total Exposure” budget. Then multiply that by your Percent Markup (this is different than Profit Margin – the formula looks like this Percent Markup = (Gross Sales – COGS)/COGS) to adjust for your pricing and profit. Then subtract your rent from that number to find out what you should spend on Advertising.

For many businesses, however, that leaves a budget close to zero as rent is often 10-12% of your budget.

I will tell you to push that upper limit to 15% of Gross Sales, but only if you can find that money without taking it out of Payroll. If push comes to shove, Great Customer Service is always more important than Advertising. It is what drives your boat.

-Phil Wrzesinski
www.PhilsForum.com

PS There you go … Five tools for evaluating your business to see where you need to improve as you sail into 2019. Take a critical look at all five in order and you’ll find your silver bullet for success. If you don’t think you can be those critical eyes because you are too busy trying to drive the boat yourself, call me. I’ll come do an analysis of your boat using all the criteria in these five Tools and show you where the boat needs work.

Self-Diagnosis Tool #4 – Inventory Management

I used to like math. It lost me when it added the timber industry into the equation (logs and natural logs and all that calculus stuff). I got jaded because I could never figure out how to derive those trees into the answer the professor wanted.

I found, however, all that algebra I had to learn to get to calculus has actually been quite useful.

Today we’re going to put it to use to diagnose how well you are Managing your Inventory. Fortunately it is simple algebra, stuff your POS system might already do for you, and stuff you can easily program into an Excel spreadsheet once and not have to do it all the time.

Stick with me, because the numbers are fascinating.

First, here is the list of numbers we’re going to calculate:

  • Profit Margin
  • Turn Ratio
  • Gross Margin Return on Inventory (GMROI)
  • Accounts-Payable-to-Inventory Ratio
  • Current Ratio
  • Cash-to-Current Ratio

Here are the numbers we need to find from our reports to calculate the above numbers.

  • Gross Sales – This can be found on your year-end Profit & Loss Statement (also called an Income Statement)
  • Cost of Goods Sold (COGS) – This can be found on your year-end Profit & Loss Statement
  • Total Current Assets – This can be found on your year-end Balance Sheet
  • Total Current Liabilities – This can be found on your year-end Balance Sheet
  • Cash on Hand – This can be found on your year-end Balance Sheet
  • Accounts Payable – The money you owe to your vendors. This can be found on your year-end Balance Sheet
  • Current Inventory at Cost – This can be found on your year-end Balance Sheet
  • Average Inventory at Cost – You will likely have to calculate this unless your POS system has a report that will give you this number. Take your Current Inventory from each monthly Balance Sheet, add those twelve numbers together and divide by twelve.

Go get those numbers. I’ll wait.

PROFIT MARGIN

Profit Margin is your profit as a percentage of the retail price. The formula looks like this:

Profit Margin = (Gross Sales—COGS)/Gross Sales

Do this math and your results will likely be between 45% and 55%. That is a typical range for an indie retailer.

Obviously the higher the number, the better. If you are at or above the higher end of this range, good for you! There might be some room to push that margin a little higher, but for the most part, that area of your business is in good shape.

If your number is at the lower end of that range—and your rent/mortgage costs for your building are at 10% or higher of your Gross Sales—then we need to seriously look at how to raise that Profit Margin. Otherwise you won’t have enough money to properly pay for things like Payroll and Marketing.

I developed a simple, intuitive, easy way for any retailer to be able to raise their prices in the right way—one that doesn’t kill sales, but actually maximizes them. Most stores who adopt this pricing strategy see both increased Profit Margin and increased unit sales at the same time. Download the FREE Pricing for Profit eBook and see where and how to raise those margins.

TURN RATIO

Turn Ratio is simply a number that tells you how often you turn over your entire inventory in a calendar year. To do this calculation, you only need two numbers. The formula looks like this:

Turn Ratio = COGS/Average Inventory at Cost

The range for this number varies quite widely from 2.0 to 8.0. If you are a seasonal business such as a toy store, a garden center, or a gift shop in a summer tourist town, your number is often quite lower (2.0 to 5.0). If you are a store without a true season such as a pet store or baby goods store, your number will likely be higher (3.5 to 6.0). If you are a commodities store (i.e. grocery) your number will be much higher (5.0 to 8.0).

This is a tricky number to use by itself for diagnosing your business health. For instance, just being at the high end doesn’t necessarily mean you’re doing well. You might be losing potential sales because your inventory is too light. One misplaced order or one vendor who is out-of-stock could cripple your next month’s sales. Being at the lower end of your range isn’t necessarily bad, either, if you are able to get favorable terms from your vendors.

Often we’ll look at this number in conjunction with another number. For instance, if your Profit Margin is low, you can offset that by turning over your inventory faster (make it up with volume).

GROSS MARGIN RETURN ON INVENTORY

One number often used in conjunction with Turn Ratio is GMROI. GMROI tells you how much money you made for each dollar you invested in inventory. The formula is:

GMROI = (Gross Sales x Profit Margin)/Average Inventory at Cost

A typical indie retailer is likely going to have a GMROI between 200% and 400% meaning for every dollar you invested in inventory, you made $2 to $4 in return.

One reason we look at this in conjunction with Turn Ratio is because of Profit Margin. If your Profit Margin is really high, that lowers your Turn Ratio, but increases your GMROI. So if GMROI and Profit Margin are healthy, we know your Inventory is probably okay, even if your Turn Ratio is a little low. But if GMROI and Turn Ratio are both low, something needs to change.

There are only three ways to affect GMROI:

  • Increase Gross Sales (without decreasing prices – you might want to revisit Self-Diagnosis Tool #3 Customer Service)
  • Increase Profit Margin (see above)
  • Decrease Average Inventory at Cost (see “Dead Weight” below)

ACCOUNTS-PAYABLE-TO-INVENTORY RATIO

(Also called “Payables-to-Inventory Ratio”)

This is an interesting number to throw into the mix because it tells you how much of your inventory is already paid for, and how much is being financed by your vendors. The formula looks like this:

AP-to-Inventory Ratio = Accounts Payable/Current Inventory

A typical indie retailer will likely have an AP-to-Inventory Ratio between 20-35%. The higher this number, the more favorable the terms you are getting from your vendors. Being at the lower end of this ratio means either you have unfavorable terms (or no terms at all—common in certain food service industries) or too much dead weight in your inventory. If your vendors are all offering Net 30 or better terms and your Ratio is low, then it is definitely dead weight in your inventory.

One interesting phenomenon this number helps point out is when terms are incredibly favorable. For instance, some of my vendors would offer me December Dating. I could stock up heavily in January and not pay until December 1st. The upside was getting my large store stocked quickly and thoroughly. The downside is that my Average Inventory at Cost would be extremely high, putting me at the lower end of the range for both Turn Ratio and GMROI. But my AP-to-Inventory Ratio would be outstanding!

(Note: if your industry does not offer terms, you need a higher Profit Margin and Turn Ratio to offset this.)

CURRENT RATIO

This number comes straight off your Balance Sheet. The Ratio shows whether you have enough Current Assets to pay off all your Current Liabilities. The formula looks like this:

Current Ratio = Current Assets/Current Liabilities

Depending on when you do this calculation, your number will vary. If you are a 4th Quarter store and you run this number on January 1st, you’ll likely have a Current Ratio in the 2.5 to 3.5 range. other times of year it might be down around 1.5.

Most banks use that 1.5 as the bellweather mark. You need to be there or higher to be considered healthy.  Anything below 1.5 is too low because even the banks realize you won’t be able to liquidate everything in a pinch.

This number by itself is only part of the Inventory Management analysis.

(Note: if your Current Ratio is too low, you can look at a couple options to make it better. First, raise your prices and sell more goods to pay off those Liabilities. Your Current Assets include your inventory at cost, not at retail. Second, look into a long-term loan to pay off some of those Current Liabilities.)

CASH-TO-CURRENT LIABILITIES RATIO

Your Current Assets include two numbers—Cash and Inventory. This Ratio is similar to the previous one, but only looks at your Cash in relation to Current Liabilities. The formula looks like this:

Cash-to-Current Liabilities Ratio = Cash/Current Liabilities

Again, this number varies widely depending on time of year. If you just finished a successful Christmas season and are loaded with cash, your Ratio might in the 70-80% range. If you ran that same number on December 1st when your Inventory and Current Liabilities were at their highest, that number could be 10-20%.

Think of those two ranges as goals to shoot for depending on the time of year and your season. (Note: if you are in an industry without a “season” you’ll likely always be closer to the 20% mark and that’s okay.)

The key to this number is to look at it in conjunction with the Current Ratio. If your Current Ratio is good but your Cash-to-Current isn’t, then you have too much inventory. If your Current Ratio is bad, but your Cash-to-Current is good, then you don’t have enough inventory.

If both are bad, we have some serious work to do.

IDENTIFY THE “DEAD WEIGHT” AND THE “MUST-HAVES”

All of that math is done to help you understand whether your inventory is in balance or not. Retail is a balancing game. If you have too much inventory, you don’t have enough cash. Without cash you cannot pay your people to sell your excessive inventory. If you have too much cash, you might not have enough inventory to make the sales you need to continue your growth and keep your customers happy.

Most inventory problems happen when you are unable to manage the two ends of the inventory spectrum—the fastest and slowest moving products.

DEAD WEIGHT

Your “dead weight” in your inventory is the stuff that isn’t moving. You’ve paid for it, but it isn’t making you any money. It just sits on the shelf and sucks the life out of you. You have to find it and turn it into cash as quickly as possible.

Think of it this way …

If you spend $60 on a product and put it on your shelf, that space on your shelf has now cost you $60. That shelf space needs to make you money. Right now, however, it is costing you. The hope is that you’ll sell the product for $120 and make $60 for that shelf space, but the longer it sits, the more you stay in the red. Once you realize that item isn’t going to sell, mark it down to $60 and get back to even. Then find something else to put in its place that will sell and make you money.

You need a system for identifying these slow movers. I used the following criteria:

  • Didn’t sell through by Christmas
  • Hasn’t sold in 3 Months
  • Damaged box
  • Old style packaging
  • Don’t like it
  • Have a better version coming

That was the stuff I needed to move out. Every year in May and June my team and I would pull all these items off the shelf, mark them half-price, and then have a HUGE sale on the third Thursday in July. Turn it into cash.

Whatever system you choose to use, make sure you have one that identifies the dead weight and turns it into cash quickly.

MUST-HAVES

The other end of the inventory spectrum is the “must-haves”, the stuff you never want to be without.

  • If customers come in asking for the product by name, it is a must-have.
  • If your store is known for selling this item, it is a must-have.
  • If you sell more than one a week, it is a must-have.
  • If the item is something you always sell and the customer needs it right now, as in they’ll drive all over town until they have it, it is a must-have.

When cash flow is poor, this is where the inventory dollars need to go. Don’t worry about profit margin. Worry about keeping your core customers happy. If you are constantly saying “No, we don’t have it,” your customers will eventually stop asking.

There are several models for what percentage of your inventory should be changing to new product each year (or season). Rather than worry about percentages, let’s just put this into priorities. When you are looking to place orders, your priorities should be:

  1. Must-Haves
  2. New Products
  3. Everything Else

The vast majority of your customers are going to ask for two things:

  • Do you have a specific item?
  • What’s new?

Inventory Management is about making sure you have a positive answer for both of those questions.

DOS AND DON’TS

If you’ve made it this far, I’m going to leave you with some simple tips that will help you improve your cash flow.

Here is my Do List:

  • Do measure those numbers above. Together they tell a story. What gets measured and managed improves.
  • Do ask for Extended Terms from your vendors (but be sure to reward those vendors by paying those bills on time).
  • Do buy less but buy more often. Smaller orders placed more frequently will always improve cash flow. If a vendor has great terms at a trade show, see if they’ll take your huge order and split it into two or three ship dates to spread out your payments.

Here is my Don’t List:

  • Don’t buy anything you don’t want. Never pad an order with something you don’t fully believe in selling. It never works out well.
  • Don’t run out of the Must-Haves.
  • Don’t out-buy your terms. If it is Net 30, try to buy 30 days worth of product (not always possible, but incredibly effective when you do it right).

Whew! We’re at the end of this Self-Diagnosis Tool. Realistically, however, this is just the tip of the iceberg for Inventory Management. There are some more details in the FREE eBook Inventory Management for 4th Quarter Stores. (I also have one specifically for the Pet Store Industry.) I also recommend you look at Merchandising Made Easy. sometimes it is your displays that are turning good merchandise into dead weight.

-Phil Wrzesinski
www.PhilsForum.com

PS If the math is driving you crazy, find a high school kid getting all A’s in Calculus. Show him this. He’ll find the math to be incredibly easy and can set up your Excel Spreadsheet so that all you have to do is plug in the numbers.

PPS Sell off your seasonal merchandise. Don’t carry it over. Without going into all the details, you’re better off marking down your seasonal merchandise at the end of the season and turning it into cash than carrying it over into next year. The math says it is the right thing to do.

PPPS One last number I might look at is Shrinkage—the amount of inventory that disappears, unaccounted for. If you’re using a POS system, your shrinkage is the discrepancy between what your computer thinks you should have in inventory and what your physical inventory actually shows. Read those FREE eBooks on Inventory Management for more info on what causes shrinkage and how to control it.

Self-Diagnosis Tool #3 – Customer Service

My favorite Smile Story was actually told to me by a customer, not my staff. Dawn had three grandchildren coming to visit her for five days. She wanted to have a different gift to give each child each day they were there. Fifteen gifts in all. Lakisha said, “I’m on it,” and led Dawn all around the store.

A few weeks later Dawn called me. “Phil, I have to tell you that gal of yours was fabulous. My grandkids loved the gifts. My grandson, he’s seven, turned to me and said, ‘Grandma, these gifts are better than if we had picked them out ourselves!’ Thank you, thank you, thank you! And thank Lakisha, too!”

That’s the phone call every store owner and manager dreams of getting.

If you’re regularly getting that call, you’re doing the right things with your staff and with your customer service. Go back to Tool #1 Core Values and Tool #2 Market Potential or wait until tomorrow for Tool #4 Cash Flow.

If you’re not getting that call at all and would be totally shocked if you ever did get a call like that, read on.

NOT AS UNMEASURABLE AS YOU THINK

Many people say Great Customer Service is not quantifiable, therefore it cannot be measured. I disagree. There are numbers you can run to see whether you and your sales staff are doing right by your customers.

I showed you two ways to measure your Customer Service in the post The Right Measuring Cups – Repeat & Referral Business and Units per Transaction. They are good starting points even though neither of those is completely perfect.

Sometimes your Referral Business is because of a product you sell that is hard to find. Sometimes it is because of some Over-the-Top Design element in your store your current customers tell their friends they have to see. I knew a jeweler who had a $30,000 diamond ring, way out of the league for that sleepy summer tourist town. She had tons of traffic right up until the day that ring finally sold. Once the ring was gone, her Referral Business dried up.

Sometimes your UPT grew because the hot item that year had several accessories or attachments. The following year the hot item had all those things included so your UPT fell.

I would still start there and see what you learn.

OTHER PLACES TO LOOK

If I were to come in to your store to do this diagnosis, here are some places I would look to get a handle on your levels of customer service.

  • Team Member Handbook – Do you have one? What does it cover?
  • Training Videos – Do you have them? If not, how do you handle new employee training?
  • Continued Training – How often does the staff meet for training purposes? What are you covering? How do you measure results?
  • Your Store Policies – Are they Customer-Centric or Business-Centric? Who do they protect?
  • New Hire Process – How do you find new employees? I want to see your Help Wanted Ads, Job Descriptions, and Interview Questions

If you don’t have a Handbook, you should make one. Write out all your policies. Write out all your philosophies. Write out how you will measure their employment. Have an HR professional and an HR lawyer proof it to make sure it is legal. Then give a copy to everyone and use it as your guide. It puts everyone on the same page and helps eliminate confusion from different team members saying, “That’s not how I was taught to do it.”

Training Videos are another way to make your staff training consistent and thorough. They don’t have to be fancy or even perfect. You can shoot them fast and simple on your phone, post them privately to YouTube, and provide the links to your new hires. If you don’t offer Training Videos, how else can you ensure that training is consistent and thorough? One way is to have the same person do all the trainings. Another is to include a checklist of everything to be covered. No matter which method you use, there also has to be a final check. One person who will verify what the new hire has learned and send him or her back for further training if necessary.

Continued Training is a must. Back in third grade I may have learned how to golf, but I’m still a few million hit golf balls shy of going pro.

“An amateur practices until he can do it right. A professional practices until he cannot do it wrong.” (source unknown)

One way we measured the results of our continued staff training was through Smile Stories. Every staff meeting began with Smile Stories where my team would share the different ways they made customers smile. Those stories not only reinforced the culture and the goal of the store – “We’re here to make you smile!” – but they also encouraged the team to actively seek out opportunities to make customers smile.

Store policies should be Customer-Centric, meaning they are in place to protect and help the customer. Liberal return policies, easy layaway plans, helpful services that make less work and less thinking for the customer are the hallmarks of Customer-Centric policies. If you limit what forms of payment or how much someone has to spend to use a credit card, you’re telling the customer that your nickels and dimes are more important than them. Once your product is no longer exclusive or hard-to-find, they will leave for someone who treats them better.

If you have aligned your business with your Core Values in a market with a lot of Potential, and are taking care of your customers the right way, you should see your Share of the market steadily climbing upward. Rarely does a company get through all three of these tools without recognizing areas that need shoring up. Start working on those.

Tomorrow we do math. (Just giving you fair warning.)

-Phil Wrzesinski
www.PhilsForum.com

PS If Cash is King, why does it fall all the way down to fourth on the Self-Diagnosis priority list? Because all the cash in the world won’t help you in the long run if your business model is flawed. Those first three priorities are all about your business Goals and Strategies. Buying and selling product is simply a means to the end. Notice how I didn’t say, “We’re here to sell you toys!”? Our goal was much bigger than that. Sometimes your Cash Flow problem is because you aren’t attracting the right customers (Core Values), don’t have enough customers (Market Potential), or are driving customers away (Customer Service). Make sense now? Get those three areas right first. Then you’ll know if your Cash Flow problems are truly Inventory Management problems.