https://www.jeffharbaugh.com/wp-content/uploads/2014/08/logo_color_640.gif 0 0 jeff https://www.jeffharbaugh.com/wp-content/uploads/2014/08/logo_color_640.gif jeff2001-06-02 19:03:042014-09-28 10:42:34Questions That Retailers Should Always Have Answers To
When I start writing these articles, I always have to remind myself who the audience is. The Skateboard Industry, of course and, based on the circulation of Skate Biz, skateboard retailers especially.
That’s where things get a little tougher, because what I know is that skateboard retailers don’t just sell skateboards and they don’t just sell to core skateboarders. With the mainstreaming of skateboarding, they are selling to the lifestyle crowd and making their money on the higher margins of shoes, soft goods and accessories. And they aren’t just selling skate hard and soft goods. Surf, or snow, or something else is probably part of the mix as well. So, what kind of retailer are they? What kind of retailer are you?
Hell, I don’t know. That use to be a lot simpler to answer back in the good old days when there were many fewer product choices and you were basically selling equipment to participants- a much more clearly defined customer group.
I know we’ve got skateboarding euphoria right now, but retailing is a tough business, the country is over retailed by most measures, and differentiating one store from another is hard. If I were a skate retailer, there are a handful of questions I’d be continuously asking myself to figure out what kind of retailer I was. Some of them you should always know the answer to. For others, it’s the continuing quest for the answer that’s the important thing.
How Do I Make Money?
The stock answer seems to be some variation on “Hard good margins suck and I make money on shoes, soft goods, and accessories.”
That’s probably correct, but not adequate. You have to calculate monthly which brands and product categories are generating how much of your sales and at what gross margin. If you’ve got a point of purchase system and a decent accounting package, you can probably calculate it every day, though I imagine you have better things to do.
In a past issue of Skate Biz, I presented a form you can use to calculate this. As I’m sure you carefully preserve all issues of Skate Biz in pristine condition in gilded binders, you can look it up. If you’ve misplaced your binders, email me and I’ll send it to you.
What might you do with this information? Let me answer a question with a question. How can you possible decide how much of which brands to carry and which products to emphasize in merchandising without it?
You also need a cash flow and regular financial statements (income statement and balance sheet- no less frequently than quarterly), but to me the revenue and gross profit analysis is the critical and irreplaceable document you require.
Who Are My Customers?
This is one of those questions you never really finish answering. And you can slice and dice your customer base a thousand different ways. I guess the first thing I’d want to know is how many of them are actually serious skaters. Second, I’d ask them their zip codes to find out where they come from. That has huge implications for your marketing efforts.
Don’t assume that what you think you know about your customers is accurate, especially if you believe it hasn’t changed over time. The value of this data is not just in what you learn about your customers at a point in time, but in seeing how it changes over time, assuming you collect it consistently.
Granted, collecting this is a pain in the ass. What good might it specifically do you? Just for fun let’s show that the zip code data shows you are getting customers predominantly from a couple of high income neighborhoods, and that people are coming a long way to get to your store. My God, it’s the retailer’s wet dream. People with more money than they know what to do with going out of their way to visit your store. Maybe you could help them dispose of some of that pesky extra money by raising your prices a few points.
That’s an extreme example, and it’s unlikely the data will be so clear-cut. But the insights you can get will make a difference in the success of your shop.
Who’s the Competition?
Ask your customers. The beauty is that you don’t have to do this systematically. If you only remember to do it with every third customer or so, fine. “Where else do you buy shoes/decks/t-shirts/wheels?” It’s not so hard to ask. The hard part is remembering to write down and organize the responses. If you do that, you’ll probably end up with a fairly short list of often-mentioned stores where you have to go occasionally to check on their selection and pricing. Hopefully, you’re doing that anyway, and it would be great if you knew you were visiting the most important competitors. Of course, your most successful competitors are where you’d like to find new employees.
Compare your prices to your competitors. If you’re cheaper, do you need to be? If you are more expensive, why are you able to get away with it? Because you’re more convenient? Have a better image? Offer better service? Analyzing circumstances where you can hold a higher price will tell you a lot about your competitive position.
What Products and Brands Should I Carry?
Well, you can’t carry them all, and if you try to carry too many, you end up not doing justice to any of them. Picking products and brands to carry has to be just about the toughest and most critical thing a retailer has to do. Inevitably, it involves a compromise on a number of levels. Financially, there’s a decision between products that generate volume and those that generate margin. No doubt every retailer would like carrying only products that carry margins of 65 percent and higher. But volume would decline rather substantially, and covering overhead expense would be impossible.
There are also market driven product decisions. In the skateboard retail business, the predominant example has to be skateboard decks. Most retailers seem to have a wall of decks they display even while acknowledging that the product’s margin is lousy. I’m sure they’d love to be able to rip those decks down and put up a wall full of shoes, watches, and pants that offer higher margins, more margin dollars, or both. But you can’t be a skateboard shop without skateboards, so in this case marketing and image wins out, as it should, over strict financial considerations. After all, we’re serving and supporting a market- not just raking in the cash.
That doesn’t mean you’re helpless. If you’ve got answers to the questions posed above, you know where you make your money, and something about who your customers are, and who you’re competing against. That’s powerful information. How can you use it?
Start by looking long and hard at products with low margin and volume. If you don’t have such things, great. If you do carry them, is there really a customer service or image reason to be doing that? Identify them and make a decision.
If you had more room, how would you use it? Which new brands would you bring in? Which brands you already carry would you allocate more space to? Your new knowledge of your margins, customers and competitors may allow you to bring in some of those products by making you comfortable with eliminating some others.
There will never be a time when you won’t have customers coming and asking for a product you don’t carry. Inevitably, you’ll wonder if you should have it. Armed with good data, maybe it won’t be such a hard question to answer.
Do twenty percent of the deck brands you carry account for eighty percent of your deck sales? The wall space those other decks take up could be used to show a lot of higher margin shoes or accessories. Your concern with such an action may be that your shop’s image as a skate shop will be tarnished if you don’t carry these brands, even if they aren’t fast movers and don’t provide attractive margins. But if you know where you make your money, what percentage of your customers are skaters and why they come into your shop, you have the ability to make a rational decision.
To a greater or lesser extent, every skateboard retailer goes through the kind of analysis I’ve described. Frequently, it’s informal, incomplete, irregular and based on gut instinct and experience instead of facts and a thorough analysis. It’s difficult to implement and institutionalize this kind of process. Once it’s part of the normal routine, however, it’s not much trouble. My experience is that the improvement in your decision-making process (and profitability) will more than make up for the inconvenience of having to learn to do some things differently.