The Retail Doctor's Guide to Growing Your Business

A Step-by-Step Approach to Quickly Diagnose, Treat, and Cure

Bob Phibbs

• Publisher: Wiley
• Year: 2010
• ISBN:
  9780470636497
• Edition: 1
• Topic: Betriebswirtschaft
• Subtopic: Kleinbetrieb

It's one of the toughest economies in years, but don't fear-the doctor is in

Are you among the thousands of retailers frustrated by market challenges and looking for ways to take control of your business? Are you looking for the advice of an expert consultant, but unable to spend the money? Then The Retail Doctor's Guide to Growing Your Business is for you.

By providing a step-by-step approach to evaluate your current business practices, The Retail Doctor offers professional guidance

• Redesign your organizational structure
• Reap the maximum returns on your investment
• Keep your business financially healthy

Following the advice in these pages will help you devise a sound strategy to accomplish your goals and outperform your competitors. You'll also gain clear insight into all areas of human resource management, sales training, merchandising methods, and marketing.

While your competitors are looking for a magic bullet to solve their problems, with The Retail Doctor's Guide to Growing Your Business, you can be making changes that will guarentee enormous returns and financial success.

Chapter 1

Financials Are the Vital Signs to Measuring Your Success

In medicine, vital signs are basic measures of life and good health. Likewise, a business’s financials are the vital signs that immediately determine whether it needs triage, treatment, or just TLC. Just as your temperature, blood pressure, and pulse are clear gauges of your body’s health, your financials are the black-and-white indicators of your company’s health. We begin with your company’s numbers because they are the tools against which you measure your progress. If you can monitor something, you can affect it, because numbers don’t lie.

Do you look at your financials every year? Every month? How about every week? If you are a Driver or Analytical—the Thinkers—the answer is probably yes. If you are an Expressive or Amiable you may already have thought of skipping ahead. Please don’t do that. I had an owner tell me bluntly, “Bob, high volume covers a bunch of sins”—kind of like “the end justifies the means.” The problem with that kind of thinking is that you can get high sales but with great damage to your profitability. You don’t have to go any further than the big retailers like Saks, who heavily discount their premium goods to try to bring in customers, to see evidence of what I’m talking about.

We’ll dig into the following key financial metrics for a business in this chapter:

• Profit and loss statement

• Pricing

• Sales by category

• Average sale

• Average number of items per transaction

• Number of transactions per customers

• Year-over-year to date

While this book is written from a retailer’s point of view, most of these tools can be applied to any service, manufacturer, or other industry.

Leverage

Suppose you have a two-year-old daughter who depends on you for her well-being. If a doctor diagnoses you with lung cancer and warns that if you take another puff, you’ll be dead, chances are good you would have sufficient leverage to quit smoking. Leverage gives you impetus for change. It’s like an internal switch that flips once you’ve seen that the costs and consequences are greater if you stay the same. Leverage is not “I want to be the next Apple.” Leverage is “if we don’t increase our electronics business by 15 percent, I won’t be able to afford payroll.” Leverage is something you have to look for on your own.

Leverage requires that you see the consequences of not changing, feel the fear that this incites, and memorize it. Imagine your house foreclosed upon and your store vacant; try using that for leverage. Use whatever works to define failure for you. Every time you don’t follow through with a change, remember this leverage clearly by seeing the alternative; that will stir you to action. Accessing your inner motivation to change means honestly appraising the results you want and using the proper leverage to follow through.

When I met Mike Sheldrake, the owner of Polly’s Gourmet Coffee in Long Beach, California, in 1998, he had more debt than he had in sales. He had hoped something would change, but when it really came down to it, his back was against the wall. He looked at his profit and loss statement and saw the consequences of years of inaction.

Perhaps you’re like Mike right now, paralyzed by your bottom line. Or maybe you have remained blissfully in the dark by only looking at gross sales numbers. But there is much more detail that could help you increase profits. The good news is that you can change your profit and loss statement by using the reporting tools you probably already have.

Now, you might say to me, “You don’t understand, Bob, we had a great June . . . it was fabulous.” But if we looked at the transaction count and found that you lost more than 100 customers, would you still consider it “fabulous”? And if you were to ask your manager why, he would probably answer, “I don’t know.”

Profit and Loss Statement

A profit and loss statement measures how much out of every dollar of sales a company actually keeps in earnings. (This is different from your product margin, which is the difference between the cost of the merchandise and your retail price.) A profit and loss statement shows your profit margin, which is net profit divided by sales. Here’s something you must always keep in mind:

You have to be profitable.

Profits mean that customers are rewarding you for your efforts in excess of what it costs you to run the business. If you are not making a profit, the market is punishing you for poor management, meager product selection, inadequate location, or rotten employees. Losses mean someone is paying for your poor management: your bank, your other job, your savings, or your spouse. Profit margins must support what your business needs to pay the bills, debt load, the owner a salary, and a “draw” for your retirement fund.

Profit margin is displayed as a percentage. A 3 percent profit margin, for example, means the company has a net income of $0.03 for each dollar of sales. That is typically the profit for a successful small business, although each business model is different. The higher your profit margin is, the more control you have over your costs—which is a real competitive advantage.

If you have a competitor who’s been around for 50 years and has no rent or financing costs, it may be able to sell cheaper than you. If you purchased your business with an adjustable home equity loan, that debt load may mean you need to charge more than your competitors. You might increase gross sales if you try to match your competitor’s low prices, but you won’t be earning enough money to garner a positive profit margin. You’ll just continue to dig yourself deeper.

What Exactly Are You Losing?

I did a business makeover for a couple who owned a restaurant in southern California. After completing the evaluation, I had to give them the difficult news that they would make more money by closing than by trying to fix the myriad challenges. The husband seemed relieved as he’d been writing the checks to bail out the business, which employed their son as manager. The wife claimed to be okay with the fact that she’d been losing up to $11,000 each month for the past year and a half by saying that, “You have to lose money to make money.” I was surprised and replied, “Okay, but this isn’t a start-up; you’ve never made a profit or anything close.” I continued, “Think of it this way. You are throwing away a brand-new Mercedes Benz—like the one you drive—every four months.” That got her attention. There’s losing money and then there’s losing money.

How to Increase Your Profit Margins Based on Your Profit and Loss Statement

1. Increase prices. No one knows the price you pay but you. You can selectively raise the price of your most popular items to most effectively add to your bottom line; you don’t have to increase prices across the board (see “Pricing” on page 8).

2. Narrow your focus. You can’t be all things to all people. It’s the difference between a restaurant with a menu of 200 mediocre items and one with 12 outstanding dishes. Consider how much profit you are making on your slower-moving items. Could that shelf space be devoted to quicker-moving, more profitable items? Yes!

3. Limit the discounting. Without a plan, you’ll do anything to get money in. I know one toy store owner who, using Twitter, tells her followers they’ll get 30 percent off if they come in that day. What she doesn’t realize is how she is robbing herself of profits to pay bills.

4. Cut waste—or get more done with what you have. Are there jobs you’re hiring others to do that you could possibly complete yourself? Do you really need to pay a window washer, for example?

5. Schedule to need. Do you have three people to open when two could do for the first couple hours? Likewise, add a staff member if you are slammed every Saturday, so you don’t lose customers to a competitor.

6. No overtime. Period. Don’t let hourly managers fill in for lower-cost hourly employees. Use salaried employees if something comes up.

7. Stop scheduling for convenience of employees. I don’t care if Vivian does like working for eight hours. If all you need her for is four, then give her four.

8. Award extra hours based on merit. Grant employee requests for more hours based only on their average sale or number of units sold per customer, not simply on their request or need.

9. Make yourself hand out all paychecks, so you personally see how much each staff member makes.

10. Pay bonuses that are proportionate to the amount of profit the business brings in rather than total sales numbers. Otherwise, you could be rewarding an Expressive or Driver salesperson who discounts to make the sale robbing you of any profit.

11. Look for theft by matching inventory to sales. A restaurant franchise I know of audits for internal theft by simply matching how many cups it received to how many cold beverages the point-of-sale system said the restaurant sold in a certain time. The results can show lots of unpaid drinks, which affect profitability.

12. Clean out the stockroom. If it’s in the back, it can’t be sold. If it won’t fit on the floor, why do you have it?

13. Cut vendors. When you buy more from fewer vendors, you’ll often get a better deal on pricing, shipping, and dating. Ordering only a few items from a number of vendors requires more bookkeeping and tracking, and you often pay top dollar to try to meet each one’s minimums. No one’s items are that special.

14. Combine your orders with another dealer to get freight and larger order discounts. Just be sure to decide ahead of time which of you will do what, and pay before delivery to avoid problems.

15. Sell added value by bundling products and services; think Best Buy’s Geek Squad. It promises it can “Fix any computer problem—anytime, anywhere.” Of course, it leaves off: “For a price.” People don’t want the hassle of figuring things out or setting things up. Customers value their time and will pay for worthwhile services related to the products you carry. Selling added value is the way to a profitable future. For example, if you ran a store that sold items for parties you could offer to set up a customer’s birthday party for an additional $100.

16. Fire unprofitable customers who need a lot of hand-holding, always beat you up on price, or constantly call you with some problem. If your company is large enough to evaluate this, ask your order desk or sales reps to provide their top 10 complainers and match them to the amount of profitable orders they generate. Even if they deliver large volume, if they don’t pass, tell them that while you appreciate their business, the costs to manage the account outweigh the profitability and you therefore must implement a price increase.

The Lazy Owner’s Way to Deal with POS Reports

When it comes to financial reports, many of us—with the exception of Analyticals—have little inclination to dwell on them. That’s normal; if you enjoyed them you would have been an accountant, not a business owner. Most point-of-sale (POS) systems can run 300 to 400 reports to slice and dice the broadest trends to the smallest details of a single item. But who has time for all that?

Instead of trying to find the time to choose, create, and download the report you want, pay your service provider to have them automatically e-mailed to you every Monday morning. The right reports will give you the necessary information you need in real time, so you can correct any problems revealed before they affect your bottom line. Here’s a list of eight reports—as well as information on what each one shows—that you’ll want to review weekly:

1. Average check—the value of each customer that day.

2. Number of transactions (also called customer count)—the number of total sales tickets that were generated each day.

3. Weekly sales by category—your top and bottom five categories to help establish buying trends.

4. Weekly sales by salesperson—how much each employee contributes to sales per week.

5. Year-over-year by week—how you are doing compared to the same week of the previous year.

6. Year-over-year to date—a running total of your year-over-year sales to help you see the bigger trends in sales.

7. Number of units per transaction—how well your crew can upsell.

8. Number of voids—will alert you to a thief among your sales staff.

These reports allow you to go back to your manager and ask, “Did you notice our average number of units per transaction has gone down whenever Vicki is working? Why do you think that is?” He would have to have the answers if he still wants to be manager. Now imagine that you didn’t have these reports, and you simply asked your manager, “Why are sales down?” He could just answer, “Because we’re not getting the traffic we need.” You would shake your head, have nowhere to go with the discussion, run more discounts, and/or dump more money into the business—without ever discovering the reasons why sales are down. This is especially true if you are a Feeler.

But looking over these reports on a regular basis lets you know that you have to retrain Vicki, move her to another shift, or help her realize that your company may not be the best place for her.

Pricing

Since many owners or managers have never taken a course on pricing or they “feel bad about charging too much,” they tend to mark up less than necessary—what I call “welfare pricing.” (In fact, I met a guy at a recent speech who sheepishly admitted he purchased an item for $20 and priced it at $25.) Your merchandise should be marked up “keystone” (that’s double), plus enough extra to make the business profitable. Although many retailers feel that their margins are okay, the individual margins may not add up to be profitable for the business. Again, it’s the merchant’s duty to attend to the bottom line.

Simply put: an item has value if it is worth the price a customer is willing to pay. There’s a deli truck in the park by my house that sells soda for 50 cents. I figure that the vendor can get a six-pack for a buck at the local big box. She might be telling herself she’s getting three times the cost; but what would a customer pay for the convenience? A vending machine would charge at least $1. But the deli truck vendor gives you a ...