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Pricing Mistakes That Lose Sales

Almost invariably when you compliment someone on the clothes or shoes they are wearing, they tell you the origin story of how they found that outfit. More often than not, you’ll also hear about the fabulous deal they got when they bought it.

While deals and discounts are great for origin stories of outfits (and other products), how a retailer handles those deals relates directly to how many origin stories get told. Plus, no matter how many deals and percentage discounts you offer, the Value Equation is still in effect.

VALUE EQUATION

While sales and events might draw traffic, the real purchasing decision comes down to the Value Equation. Does the item I’m about to buy seem to be worth the price I am about to pay? Or more simply put …

Do I want the item more than I want the money it will take to buy it?

When we walk into a store we immediately start asking those questions of every product we see. At what price would I buy that item?

For most of the store, the answer is “Free”. So you walk right by those items until you find the item you want. When you find that item you immediately assign a price you would be willing to pay for that item. I often call that the Perceived Worth. Then you look at the Actual Price. If the Actual Price equals the Perceived Worth, the item goes in the cart and your origin story begins.

The problems arise when the Actual Price is not equal to the Perceived Worth. If the price is much higher than you thought, you walk away and keep looking. If the price is much lower, you first have to figure out why. Is the item inferior? Is the quality bad? Does it not do what I thought it would? Did I overestimate its worth? Until you have satisfied that question, there is no origin story.

WHAT’S THE PRICE?

The worse problem is when there is no Actual Price (or at least no clear sign on what the discount might be). Now you have to engage a sales clerk to make a Value Equation decision. Or you might have to take the item up to the register to have them scan it to see if it fits your Perceived Worth.

Many guys will walk away from the purchase of anything that wasn’t the one item they came in to purchase if there isn’t a price on it. Many introverts will do the same.

You’ll lose all impulse sales on the items that aren’t priced.

You’ll also lose sales if the discounts aren’t clearly marked. While the origin story might become awesome when a customer gets to the register to find an extra 30% off, if she had known that discount before she got to the register, she might have bought multiple items. As it is, now she doesn’t want to hold up the line to try to find a couple more in her size or have to get back in line to wait even longer.

You’ll lose multiple item sales when the discounts aren’t fully marked.

While many of you have downloaded and follow my three rules on Pricing for Profit, here are two more rules to add to your pricing philosophy:

  1. Price your goods based on their Perceived Worth (not on their cost). If it looks like a Fifty Dollar Item, price it at $49.99 and watch it fly off the shelves.
  2. Make sure all your items are clearly marked with their current price. You’re losing sales if you don’t.

Pricing is the one mistake no retailer can afford to make. Fortunately, the pricing rules that increase your sales are easy to follow.

-Phil Wrzesinski
www.PhilsForum.com

PS I had two experiences this past weekend where these rules came into play. The first was a pair of shorts. I found the ones I liked and was ready to buy until I saw the price. It was much, much higher than I was willing to spend, so I put them back. The second was an air conditioner unit. I walked into the store with no intention of buying a new AC window unit. Oh, I had the thought of wanting to replace my older, energy-INefficient model eventually. But that wasn’t my purpose of this trip. Yet there was a stack of them right in the middle of the aisle—with NO PRICES! After wandering around the pallet twice, I gave up. If I hadn’t walked past the section of the store with more AC units—this time priced—I would not have made a purchase.

A New Beginning for Me, An Old Lesson for You

Today is an exciting day for me! Today I start a new job as the National Sales Manager for HABA USA, a wonderful toy and game company I used to sell at Toy House. I will be responsible for helping the sales reps get more HABA toys into more retailers.

What does that mean for this blog and the resources on this page? Not a whole lot.

I will be blogging less, but the resources will remain, and the insights will only increase as I expand my scope of understanding of all aspects of the retail market. I will still be available for presentations and workshops (albeit my schedule will be a lot tighter and less flexible). And I will always be looking for new ways to help indie retailers and small businesses succeed.

In fact, because of my new position, I had this experience happen last Saturday that we all can learn from.

SATURDAY AT THE MALL

I needed to updated my wardrobe. After years of wearing Toy House logo shirts, and two years of working at home 85% of the time, my wardrobe isn’t ready for trade shows and meeting with retailers and reps. That meant shopping.

I went to a large mall with several of my favorite stores. I used to be a Dockers guy, but have found Haggar pants to fit me a little better. The outlet store was having a sale on pants, too! Road trip.

Of course, when you study retail for a living, you don’t shop like a typical guy—run in, grab, and go. Don’t get me wrong. That’s exactly what I did at Haggar. But then I walked the rest of the mall to see what was happening. Plus, there was a toy store in the mall. I wanted to know if they had HABA in their store.

The store was nice. Decent traffic as would be expected midday on a Saturday. A sales clerk approached and asked if I was finding everything okay (cringe). I said, “I was wondering if you carry HABA toys?” I had seen a few of HABA’s competitors on the shelves but not HABA at that point.

She said, “I don’t know. Let me check.”

While I kept browsing, she went up to the registers and looked it up. A few minutes later she came back and said, “No we don’t.” Then she walked away never to be seen again.

In her mind she thinks she gave me good customer service. She approached me and answered my question.

In reality she missed the boat completely. I handed her the most perfect opening for starting a conversation and building the relationship that could lead to a sale. She could have asked me one of several questions …

  • What does HABA sell?
  • Why are you looking for HABA?
  • What product in particular were you hoping to find?
  • Who are you shopping for?
  • Can I show you some alternatives?

Instead she walked away. 

This is a problem we all have with our sales clerks. At best, they make an attempt at the low-hanging fruit, but never reach beyond that first branch. They shy away from actually helping a customer and making a sale. They back off at the first hint of rejection.

Last summer I created a new presentation for the Independent Garden Center Show called How to Push for Yes (Without Being Pushy) (click the hyperlink to download the FREE eBook) just to help with this situation.

If you want your sales team to go after the better fruit on the higher branches you have to first equip them with the tools to do so. Then you need to motivate them to step out onto the limb. That’s what HABA has hired me to do with their team. I am looking forward to it!

-Phil Wrzesinski
www.PhilsForum.com

PS I love the IGC Show! Last summer they challenged me to create five new presentations from scratch that collectively went on to become my half day workshop The Ultimate Selling Workshop. this summer they have challenged me to create five new presentations on selling. As always, I am looking forward to that challenge. As long as I live there will never be a shortage of new lessons (or takes on old lessons) for us to all collectively learn.

Another Phrase You Need to Quit Using

One downside to being a speaker for the retail industry is that there aren’t a lot of speaking opportunities in December. (It is also an upside in that I had a lot more time around the holidays, but I digress.) With all that free time, I took on the project of replacing the cabinets in my friend’s kitchen. He had a broken cabinet, plus wanted to do some simple remodeling and moving of appliances. It was a fun project.

One day shortly after finishing that project, I happened to be walking through the cabinet section at Lowe’s with my girlfriend. We were talking about some of the cabinets we might have chosen for the project.

A sales clerk approached us and asked, “Are you finding everything okay?”

“Yes, we are. Thanks.” I cringed as I said it because it rolled off my lips without a moment’s hesitation. It was as knee-jerk a reaction as “Just looking,” or “I’m fine. How are you?”

The annoying thing is that I often asked that same question of customers at Toy House. I often got the same response. Until I learned a better way.

We all know not to ask a customer, “Can I help you?” Now asking the customer, “Are you finding everything okay?” is the new no-no.

Why? Because the knee-jerk response kills the conversation with the finality of a Clint Eastwood Smith & Wesson.

OTHER WAYS TO OPEN

There are a whole bunch of other ways the salesperson could have opened the conversation.

He could have used a question about the product we were admiring …

“Are you admiring that set for the color or the style?” I would have answered color. My girlfriend would have answered style. And we would be talking.

He could have led with a feature …

“Have you seen the new soft-close drawers on that unit? You have to try it.” I would have opened a drawer and he would have had the opening (both figurative and literal) to talk to me about features and benefits.

He could have used a personal statement …

“You’re looking at my favorite style. I’ve been dreaming of remodeling our kitchen with those. What style would you put in your dream kitchen?” We probably would have talked for several minutes.

He could have even led with his name …

“Hi guys. I’m Carl, your kitchen remodel expert.” I would have responded, “Hi, Carl.” I might have even taken his card.

The point here is that there are many ways Carl could have opened a conversation that might have led to a sale. Big sales like kitchen cabinets rarely just happen out of the blue. They take time and effort, and a relationship you build with the customer first.

“Are you finding everything okay?” implies that the customer is in control, you don’t really want to help unless absolutely necessary, and a relationship isn’t even on the salesperson’s mind. The customer really only has to give you one of two responses—Yes or No. If she says Yes, you’re out of the game before you even got in. If she says No, there still is no guarantee she’s going to ask for your help because she still doesn’t know or trust you.

Half the time she will lie and tell you Yes when she means No just to not have to deal with you.

The next time you and your staff get together for training, work on alternate openings to “Are you finding everything okay?” and strike that phrase from your vocabulary. It will help you convert more customers into relationships which will lead to more sales.

-Phil Wrzesinski
www.PhilsForum.com

PS Sure, I wasn’t in the market for cabinets that night. The salesman didn’t know that. And with that opening he was never going to find out. The opening of the relationship is not only crucial to making today’s sale, it also sets the foundation for a long-term relationship and customer loyalty. For more ways to meet and greet your customers, check out the FREE eBook The Meet-and-Greet: Building a Long-Term Relationship with Your Customers.

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.

Go here for Self-Diagnosis Tool #5 – Marketing & Advertising

Self-Diagnosis Tool #2 – Market Potential

When my son was in Cub Scouts, his Den Master was the manager of one of our local Kmarts. He gave me some amazing insights into the world of big-box retail including numbers of what the big-box stores in Jackson were doing in sales both overall and for toys.

It was an eye-opener, especially when I learned we were doing more in toy sales than both Kmarts in town combined.

Knowledge like that is game-changing. Knowing where you stand in your market, and what is happening to your market is critical to your success. Heck, just knowing if your market is even viable is quite important.

If you were a start-up looking to get into business, I would actually put this Tool ahead of Tool #1 – Core Values. Let’s go find a viable market before we even begin with the other stuff. As it is, if you’ve made sure your business lines up with your Core Values, the next step is to look at what is happening with your market. How big is the pie and how big is your slice of it?

CALCULATING MARKET POTENTIAL

The best way to find the potential amount of sales in your area for your industry is to follow this step-by-step formula.

  1. Find the total dollars spent in your industry in the US. Usually a quick Google search can find you this number. For instance, in 2015 the Toy Industry was $19.1 billion.
  2. Divide that number by the US Population. In 2015 there were 322 million people in the US. $19.1 billion divided by 322 million equals $59.32/person
  3. Multiply that number times the population in what you consider your Trade Area. For instance, we considered Jackson County our Trade Area. Population 158,000 people times $59.32 equals $9.4 million Market Potential

For years I did the calculations and stopped right there. It is a close approximation. But it isn’t accurate. I needed to add two more calculations to get a true picture.

ADJUST FOR HOUSEHOLD INCOME

We didn’t sell groceries. We didn’t sell commodities. We didn’t sell basics like clothing. I needed to adjust the Market Potential based on the local economy. The number I used was Average Household Income (AHI). Find out the AHI for your Trade Area and compare it to the national average.

Back in 2015 the national average was $55,775. Jackson County was $43,170 or 22.6% less. (The city was much lower, but I used the county because we considered the entire county our trade area.)

That adjusted our Market Potential down to $7.3 million.

If you sell luxury items, this is a critical step for understanding your Market Potential.

ADJUST FOR INDUSTRY DEMOGRAPHICS

You may also need to adjust your numbers based on a demographic specific to your industry. Since we started with total US sales and total US population to get a sales/person amount, you might get a number that is skewed for your area.

For instance, if you sell boats, your market is much bigger in Michigan, with the Great Lakes, or Minnesota, with ten thousand lakes, than it might be in Nebraska or New Mexico. You might look into average boat ownership per population and compare your Trade Area to the national average.

If you sell books, you might want to look at the educational level in your Trade Area compared to the national average.

If you sell toys, you might want to look at the youth population in your Trade Area.

This number may be harder to find. I was able to cross-reference the US Census to find that Jackson County had 6% fewer children than the national average. That dropped our Market Potential down to $6.8 million. 

Notice how those two adjustments really changed our Market Potential?

CALCULATE YOUR SHARE OF THE MARKET

Once you know your Market Potential, it is easy to find your Market Share. Simply divide your sales by the Market Potential. In 2015 our sales were 15.7% of the Market Potential.

I used a spread sheet for all of these numbers. I put in the formulas for calculating percentage differences. All I had to do each year was find the raw numbers and plug them in.

The power of doing this math is two-fold.

Not only do you know exactly where you stand in your market at any given time, you also know how your market is changing.

WHERE YOU STAND

Walmart has 25% of the grocery market and around 10% of the entire retail market in America. As sobering as that may sound, at one point back in the 1950’s Sears had over 50% of the appliance market. That’s a mind-blowing number—especially when you consider where Sears is today.

The real Gold Standard for any retailer is to achieve 30% of your Market. It will likely take a perfect storm to get any higher than that. Back in the early 1980’s before we got a second Meijer, a Target, a Toys R Us, and a Walmart, we were pretty close to that mark. For most independent retailers the more likely expected number is 3-5%. Our 15.7% was a combination of store size and longevity in the market, along with all the other things we were trying to do right.

The interesting point here, though, is not in how many people shop with you but in how many people don’t shop with you. Almost 85% of our Market didn’t shop with us. That’s a lot of potential customers. If I wanted to grow my business by 10%, I only needed to convince another 1.57% of the 158,000 people in the county (2500 people) to walk through our doors. If you only had 5% of your Market, you would only need to convince another 0.5% of those people to shop with you to achieve 10% growth.

Trying to convince 2500 people is far easier and much different than trying to convince 158,000 people. You only need to find 2500 people who don’t yet know you, but share your Values.

CHANGING MARKET

The other critical piece of information you can gain is by doing this calculation year after year and watching how the numbers change. Is your Market Potential growing or shrinking? Is your share of the Market growing or shrinking?

We watched two critical numbers during the Great Recession. One was Average Household Income. One was Youth Population.

From 2007 to 2016 our Youth Population for Jackson County dropped over 40%. I drilled down into those numbers and saw even worse news. While national birth rates were dropping during that time, our birth rates were even lower than the national average except for one glaring segment—teen births. The city’s birth rates, thanks to this segment, were similar to national averages while county birth rates were well below average.

Average Household Income didn’t fare much better. At one point the AHI in the city limits was hovering around the poverty line at $27,000. Our closest customers had no money for toys. The outer areas of the county where the money was had no children. Not a good recipe.

Add into that mix, we watched the Sales per Person of toys in the US also decline from a peak of $75.17/person in 2004 to only $59.32 in 2015. People were spending their money on electronics like smart phones, tablets, and computers.

Over the years our Market Share didn’t change a whole lot, but our Market Potential did. In 2007 it was $11.9 million and we had 16.5% of it. In 2015 it was down to $6.8 million and we still had 15.7% of it (even though Amazon had become a major player in toys around 2011-2012). 

COMPETITION

The other barometer Market Potential and Market Share gives you is your own business’s health compared to the competition. While top line sales are nice, the true question you need to ask is whether your Market Share is growing or shrinking. You could be up 10% in top line sales, but if your market grew by 15%, someone else is eating your lunch.

If you have done your spread sheet and have several years of data to analyze, plot into the data when major competitors came to town or made major changes to their businesses. See how that affected your numbers. For instance, I can see that when Walmart opened in Jackson in 2005 our share dipped from 16.5% down to 15.9%. I can also see how we jumped back up to 16.4% the following year after the novelty of the new store wore off. I can also see how we dipped down to 16.1% in 2011 and 15.8% in 2012 when Amazon became a serious player in the toy market.

All of these numbers tell a story far more compelling than whether your store’s sales are growing or shrinking. They help you understand your business on a far greater and more important level.

If your Market Potential is growing, there is money to be made, but be cautious. The big guys are tracking that number, too, and might be looking to expand into your market. If your Market Potential is shrinking, you might need to look at moving, changing, or finding an exit strategy.

If your Market Share is growing, you’re doing things right. If your Market Share is shrinking, you have work to do.

That’s why you should make this your second priority to diagnose and understand.

-Phil Wrzesinski
www.PhilsForum.com

PS Where does that 3-5% number come from? This comes from looking at average store sales for several different industries including toys, pet supplies, shoes, jewelry, photographic supplies, and flooring. While there are many outliers and the range is quite broad from large to small, the average store for most of these industries has enough sales to grab about 3-5% of their market. I use it purely as a benchmark for start-ups to be realistic about their business prospects in the first few years. Getting to 3% within two to three years is a realistic goal. If you’re in a town with a strong Shop Local movement that might be easier, but you might also have more indie competition. If there are no indie competitors, you have an unusually large store, and you’ve been the fixture in town setting the bar of expectation for over sixty years, your numbers should be much higher.

The reality, however, is that the number itself doesn’t matter nearly as much as what is happening with that number. Is it going up or down? If it is going down you need to find out why.

Go here for Self-Diagnostic Tool #3 Customer Service

 

Christmas Quick Tip #10 – Move Stuff Around

For the holiday season I am keeping these posts short and simple. You’re busy. I’m busy.

Here is tip #10 …

MOVE STUFF AROUND

By now you’ve had a pretty good taste of what people want. You already know the slow movers, the stuff you had high hopes for but haven’t seen the sales. Now is the time to move it.

Here is how you sell that merchandise without heavy discounts …

  • Move it around
  • Put it in a better location
  • Give it a spotlight and a sign
  • Treat it like it is special
  • Talk it up to your customers
  • Talk it up to your staff
  • Give your staff a spiff for selling it

It is better to mark it down a little and move it now while you have a lot of customers than try to move it in January at really deep discounts when you don’t have the traffic.

You have from now until Friday to identify those slow movers and relocate them in the store. (On Friday the men start their Christmas shopping.)

Go!

-Phil Wrzesinski
www.PhilsForum.com

PS Remerchandising should already be the busiest thing on your schedule as you constantly shift inventory to make the store look full.

Christmas Quick Tip #7 – Lead with the Best

Of all the Christmas Quick Tips I will give you, this one will be the hardest to master and quite possibly the most rewarding when you and your team do master it …

Here is tip #7

LEAD WITH THE BEST

Your customer is looking for solutions. Yes, at this time of year we call them gifts, but at the end of the day, they are really solutions to problems.

When you offer suggestions, unless the customer has given you a price range right up front, ignore price altogether and start by showing the best solution you have.

It doesn’t have to be the most expensive. It just has to make the most sense.

The tendency of most retail salespeople is to sell from your own pocketbook and start by offering the cheapest solution. That doesn’t win hearts (or build profits). You can use the cheapest solution as the fallback when they balk at the price of the best solution, but always lead with the best.

A customer will expand his or her budget if the product offered truly fits her needs.

You are a solution provider. Your job is to provide the best possible solution first. Then the customer can decide what she’s willing to compromise to fit her budget.

Teach your team that goal number one is to solve the problem in the best way possible. Always lead with the best.

-Phil Wrzesinski
www.PhilsForum.com

PS Never open with the question, “What’s your budget?” First, they almost always lowball you well below what they would actually spend for the right product. Second, it pigeonholes you and often keeps you from showing her the right product. She’ll tell you when it’s out of her league, and you can adjust your offerings from there.

PPS Some of my favorite stores have successfully talked me into buying a more expensive item than I planned. I love those stores because in each case the solution was worth the expenditure. On the flip side, there are stores I won’t visit again because they tried to upsell me something that wasn’t the best solution to my problem. Always lead with the BEST.

Christmas Quick Tip #4 – Never Say No

For the rest of the Christmas season I am keeping these blogs short and simple with one tip, tool, or technique you and your team can use to make this season rock!

Here is tip #4 …

NEVER SAY NO

You are going to be asked quite often for products you don’t have. Either you’re out-of-stock or you don’t carry that product (or maybe you’ve never heard of it). 

When the store is busy and you have other customers waiting to be helped, it is easy to simply say No and move on to a customer you can help.

Resist the urge.

Train yourself and your staff to Never Say No. Try out these phrases instead …

  • I have some coming in soon. Can I arrange to have it sent to you as soon as it comes in?
  • Are you looking for that particular item, or can I show you something similar?
  • We prefer this brand instead (be direct)
  • What are you hoping to do with that item? (if you know this isn’t just meant to be a gift)
  • Can you show me what it is? (if you’ve never heard of the item)

All of these phrases are conversation starters. Often a customer is looking for a specific item because she doesn’t know alternatives exist or she has an idea in her head and can only think of one solution. When you start the conversation, sometimes you find better solutions than the one she asked for.

If all you do is say No, they often quit asking.

-Phil Wrzesinski
www.PhilsForum.com

PS Here’s another tool I stole from a fellow toy store owner. Create a “No List.” Put it on a clipboard up front. Every time an employee gets asked for a product you don’t have or a service you don’t offer, write it on the No List. If one thing ends up on that No List several times, you should consider selling that item or offering that service. Your customers already think you would.

The Benefits of Teaching Benefits

He drove from Windsor, Ontario to Jackson, MI on a Friday night. “We have a Graco car seat and were told you are the closest store to have the matching stroller. Do you happen to have it in stock?”

“Yes, we have two different versions in that fabric. Which did you want?”

“Two versions?? Hold on.”

(On phone…) “Honey, they have two different strollers …”

After hanging up, we started taking about the features they wanted in the stroller. Light weight? They both had that. Easy fold? Check and check. Big wheels for walking outside? Yes and yes. Compact fold?

“What are you driving?”

“A Honda Civic, why?”

We took both strollers out to the parking lot, folded them, and then tried putting them into his trunk. They both fit, but one only went in if you had it upside down, put the front wheels in first, turned it 90 degrees, rotated it another 45 degrees and pushed really hard. The other slid in easily.

Feature: It has a compact fold
Benefit: So that you can fit it into your tiny trunk with room to spare for groceries and other stuff.

  • Feature = What it does
  • Benefit = How that helps you

It does this … So that you …

Feature: This blog offers tips, techniques, and ideas for every aspect of running a retail business …
Benefit: So that you have the tools necessary to run a successful business and have fun at your job …

Feature: Subscribing to this blog gets you an email of every new post as it is posted …
Benefit(s):

  • So that you know before your competitors what to do to gain an advantage.
  • So that you get something thought-provoking, inspiring, and helpful sent directly to you, without having to dig to find it.
  • So that you have something in your inbox that you look forward to reading to offset all those emails you dread.
  • So that you have a diversion when you just need to get away from everything else.
  • So that you get reminders of the things you already know but may have forgotten.

The Feature doesn’t sell the product. The Benefit does.

The best game you can play with your staff (new and old) is to grab a random product off the shelf, identify one of its Features, and then list as many Benefits as you can for how that feature can make someone’s life better.

There are lots of ways, places, and times to practice finding the Benefits.

  • Do it when a new product comes in so that everyone knows how to sell that product.
  • Do it during a staff meeting. Make a game out of it.
  • Do it in your daily five-minute huddle.
  • Do it during a slow moment on the sales floor.
  • Do it during training for new staff.
  • Do it randomly and on the spot.

Do it so often that finding the Benefits—how the product makes someone’s life better—becomes second nature with your staff. When it becomes a mindset for them, you’ll see the sales of your more valuable items start to rise.

-Phil Wrzesinski
www.PhilsForum.com

PS One other Benefit from playing this Benefits Game is that it helps you become better at identifying the products you’ll be able to sell better (ones with more benefits) and the dogs you need to clear out of your inventory (ones with fewer benefits). 

PPS One other Benefit from playing this Benefits Game is that it helps you be better at selling the lesser-known brands you carry to compete with the mass-market brands customers ask for by name.

RIP Sears

There is a group on Facebook for people who grew up in Jackson, MI. The posts are mostly, “Who remembers …?” so that former Jacksonians can reminisce about days long past. A recent post was about Toy House. A couple hundred people waxed nostalgic about visiting the original store in the 50’s and 60’s.

Several people mentioned the Catalog Sale, something my grandfather started early on.

The Catalog Sale was a two-weekend sale, once in October, once in November, where people brought in their catalogs and we matched the catalog price on any toy we had in stock. Our goal was to keep the sales in town.

The Sears Catalog

The most common catalog was the Sears Christmas Wishbook.

We ended the Catalog Sale in the early 1980’s when it turned out our prices were usually sharper than the catalogs at that time. The event was no longer a draw. By 1993 even Sears had stopped producing their catalog.

Times change. Retail shifts. Today Sears has filed bankruptcy.

Sears was Amazon before Amazon with their mail-order catalog business that allowed you to buy almost anything you could imagine from the comfort of your own home.

Sears was Walmart before Walmart when they dominated the retail landscape in the 1940’s and 50’s by offering a wide variety of merchandise at low prices. By 1969 Sears was the largest retailer in America with a larger market share of categories like home appliances than any retailer has ever had since. Four years later they completed construction on the tallest building in the world.

Sears also was a pioneer in retail, with legendary sales training, teaching their sales staff how to upsell and not sell from their own pocketbook. They were taught how to sell on features and benefits. They had their own credit card (which eventually became the Discover Card). They had their own insurance agency (which became AllState). 

Today they filed bankruptcy.

The easy blame is going to be Amazon and Walmart. Amazon out-Searsed Sears in the mail-order business. Walmart out-Searsed Sears in the commodity goods business.

Yet when was the last time you truly thought of Sears as a convenience-based place to buy goods? They dropped their catalog back in 1992, two years before Amazon launched.

And with well-known economy brands like Kenmore, Craftsman, and Diehard, tons of cash, and superior vendor relationships, Sears was well-positioned to destroy Walmart in the race to the bottom. Yet they dropped faster than a greased baton at the blind relays. 

So what happened?

The answer is quite simple. Sears got away from their competitive advantages and Core Values. Convenience and Commodity Brands were only two of them. The one I believe they truly missed was their sales training.

When was the last time you were blown away by the customer service at Sears?

Toys R Us got away from their Core Values in 1992 when Walmart surpassed them in total toy sales. Sears did the same thing over the years as they gave up the advantages that brought them to the table.

There are several (contradictory?) lessons in all of this.

  • Retail is always changing.
  • New competitors will try to beat you at your own game.
  • Stick to what you do best.
  • Don’t give up your advantages.
  • Adapt or die.
  • Stay true to your Values.

We’ll explore these concepts over the next few days and try to learn from their mistakes.

-Phil Wrzesinski
www.PhilsForum.com

PS It is never a good day when a legacy retailer such as Sears files bankruptcy. If we don’t learn from their mistakes, though, then we’re likely to make the same ones ourselves. As I’ve always said, Retail is not Rocket Science. Rocket Science is actually math for which you can solve all the variables. Retail has variables and equations that never fully resolve. The lessons, though, are fascinating.