In a recent article published in the Newark Star Ledger, retail sales were reported in the second quarter (April) starting at a much slower pace compared to the first quarter of 2011 due increased gas and food prices. So how does this affect the general economy? When you consider that retail sales account for about half of the total consumer spending and about a third of the final sales in the U.S., it becomes a significant factor in the over all economy. For the small business owner, it is a major problem that left unchecked can reduced sales, profits, and available working capital.
There are four major action steps small business owners in retail operations can take that will provide them with some degree of control over retail sales.
Step 1. Breakdown your total sales into smaller groups on the bases of similar characteristics; to enable you to pin-point the problem areas much easier. This can be done by proper classification, coding, and over counter software.
Step 2. Establish a flexible control over vendor purchases for each group. Because vendor purchases are variable to sales, resale purchased can be targeted to each sales group and controlled on an ongoing basis.
Step 3. Review and establish marginal targets for each sales group. You markup targets which set your retail price should reflect the marketing conditions and meet competitor’s prices.
Step 4. Take a physical count of inventory on hand for each sales group. Targets should be set for proper levels of inventory on hand and this target adhered to by action steps to reduce inventory through promotions and sales, thus relieving higher levels of working capital than needed from excessive levels of inventory on hand.
Once you have each control point properly implemented, interlock the affect of each control into one action step. For example, suppose you find your retail sales have been dropping with group A. Upon review of the above, you find an increase in cost of purchases along with higher prices than you biggest competitor. Possible action; reduce your purchasing cost by locating another vendor or negotiate a new price with the existing vendor. From the resulting savings in reduced vendor costs, drop your margin requirements thereby reducing your sales price below your biggest competitor. Introduce your action through a promotional sales program to let potential customers know where they can now buy group A for less.
Keep it simple to be effective.
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(The views in this article are those of the writer and are not to be taken, implemented or used by another person for any purpose without permission)