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  • How Do I Make a Profit to Survive in the Face of Lower Margins?

    Retail executives continue to examine and reexamine their sales, gross margins and profitability to uncover ways to make their company more profitable. They look at every line item in their financial statements and too often conclude, cut more people, reduce service levels and be more cautious taking customer returns.

    Sound familiar?

    Let's talk about American railroads and their demise in attracting passengers following this "convenient" strategy. As I wrote in my book, "Predatory Marketing," it's easier to cut people than grow market share.

    Today's competitive environment makes it more difficult to stand out. Your retail specialty may be cluttered with many primary and secondary players. No matter how many there are, you still need to be the customers's first or possibly second store they shop.

    1. Remember, you can only get a premium when you have earned it.

      Lower margins exist because you do not have a compelling merchandising strategy that motivates your customers to buy more profitable products.

      More profitable products typically are better, more expensive products. You must make the setting and the advertising for that product superior to the lower margin item.

      Consumers at the better to high-end are three to five times more store display driven than their lower-priced counterparts. Desperate companies with no vision, and in a retrenching mode, often convince every shopper to pay less and less and less.

    2. Demand higher service levels from yourself and your people in the field.

      Customers want to be respected. They want to feel the money they leave is appreciated longer than their car's taillights are visible from the store's front door.

      Service is everywhere and everything. Service is even a clean store with clean restrooms, as well as employee attitudes and knowledge.

      Retail executives who "hide" in their "office kingdom" barking out executive commands will never survive today's higher service expectation levels. Service should be the standard by which all corporate decisions are measured.

      And that standard measures each employee, even the top executive. When the leader moves into a gray area, expect those people below to follow with a similar attitude.

    3. It is equally important to market to your employees as well as your customers. Customer loyalty comes after many years of contact with the same person; seldom with new employees.

      Employees must like their job. They may not love it, but they cannot hate it. Customers will quickly see through the daily disguise to uncover the truth: your employee doesn't want to be there that day or possibly ever!

      True marketers understand that employees make the sale; they determine your margins and they decide your closing rate. For this core reason they run your company.

      Retail executives who cut employees who sell to the customer may find short-term savings, but they often experience lower profits in the long-term. In some cases companies are filled with soured employees who don't want to work there, so letting them go is a plus.

      Additionally the long-term employees can build loyal customers who will spend more because they trust this employee or the person makes the shopping experience so pleasant that you want to return to see this "retail rarity" again.

    4. When customers see little or no differences, so goes your profit!

      As customers weigh all the decisions in their family life, they migrate to safe choices when in doubt. Often, "I'm not sure where to go. I'll go to Sears because I can trust them," is the response shoppers give to buying at Sears. When in doubt, play it safe.

      When shopping for a product, customers will pay more when they know they should. The customer tries to measure your display of product in the store to conclude "Which one best fits my needs? I know I can spend less."

    5. You need product identity with superior presentation.

      Speaking of display, customers invariably look at the one product with the most visibly commanding position. A retailer giving all the products within a category equal shelf space is doing his store a disservice and is not directing the customer. Making every product equal makes no one product important!

      Retail companies need to pick their product identity carefully. They need to consider existing and future margins and guarantee their store's presentation is clearly superior to all competitors. Most importantly they need to tell the world why they are the right choice for this product and take a stand.

      Most companies say, "I want to sell everything." I will tell you most consumers will respond, "You do sell everything, just like everybody else!"

      I can't tell you the ideal expense level for an item, but I can tell you that selling too many lower margin items is a corporate attitude that executives create by their absence from people on the front line. Sam Walton understood his store employees' value to the organization. R. H. Macy understood the power of making housewares a core product identity for his department store.

      Many in corporate America look at numbers and never see faces.

      Those few leaders who do see the faces of employees and customers in their balance sheet will not face the lower margins dilemma. They will remain market leaders producing healthy bottom lines.

      It's too bad we don't have enough of those insightful executives. America cries out for companies willing to take a stand and who have employees who respect their customers.