retail furniture industry is always challenging. Two years ago,
the challenge many stores faced was around the flood of consumers
walking in the door. Today the challenges are around the drought
of consumers not walking in the door. In both situations, the impact
on the independent furniture retailer has been the same—a
struggle to stay profitable.
the biggest boom cycle the furniture industry has seen in many years,
many retailers experienced challenges as they saw revenue grow and
expenses grow even faster, causing profits to suffer. The good times
saw growth in the number of competitors. With the increases in competition,
retailers were under pressure to keep traffic high and as a result
during this last boom, retailers began to experience
competition from new channels for moving furniture such as warehouse-buying
clubs, manufacturer operated outlet stores, and the Internet. Although
the channels are only a fraction of all furniture sales, the models
are improving and will only prove more threatening to the future
profitability of the traditional furniture retailer.
bull market that has been driving the US economy for the past ten
years is showing signs of weakening, as anyone who has been watching
the stock markets can tell you. The perception of the economy has
a direct impact on the buying mood of your customers. Right now
there are billions of dollars sitting on the sidelines looking for
direction, and once they decide to buy, the traffic drought will
end and the flood cycle will begin again.
what can you do to make sure you are around for the next
leg of the cycle?
lot of storeowners are going to try to drive sales at all costs,
hoping to survive on their revenue stream. That thinking is only
going to put a number of stores out of business. The stores that
survive the current shakeout are going to be the ones that focus
on driving their profitability.
reason I say this is because there are only four things you can
do to drive revenue:
1. Increase prices
2. Increase traffic
3. Increase the number of people who
4. Increase the amount they buy
There are hundreds of things you can do to drive profitability.
revenue is a long process. For most store owners it means an increase
in the number of sales events in an attempt to drive traffic.
profitability is a short process. A process that generates results
the very next transaction.
revenue is a team effort. It requires a lot of meeting and it requires
buy in by everyone. It requires consistent vigilance to succeed,
as there is a natural tendency for the sales team to take the path
of least resistance, which is to go back to the way they always
did things before.
profitability is a series of management decisions. Steps that can
be crafted into a logical procession of steps to complete a sale
or "you don't get paid." Easy
to create Easy
to execute Easy
revenue costs money. You need to buy stuff to sell cheap. You need
to advertise how cheap it is. You need to ship it in and ship it
out, and hope they buy something that is not cheap to make the whole
profitability saves money. You sit down and look at all the expenses
that erode your margin and find cheaper alternatives or eliminate
them all together.
revenue is short term. The expense of the effort to drive revenue
limits how long you can drive revenue.
profitability is long term. Once an expense is brought under control
it stays under control until you decide to change it.
what does a store owner do in hard times to make sure he is around
for the good times? He does both.
does both in an intelligent way recognizing there are natural economic
boundaries that will have impact on any actions he takes. There
is a universal economic principle called the "law of diminishing
returns" that should be the standard by which a storeowner
decides what steps he will take to improve his business. Those steps
will always include a mix of driving revenue and driving profitability.
The mix of improvement actions depends on the store.
all my years of working with retailers, I have never seen two stores
that had the exact same mix of driving revenue/driving profitability
storeowner needs to develop benchmarks that apply to his store.
This requires a system for collecting information. For stores that
have an industry specific computer system, the keys to your survival
are already in your hands. You just have to use them.
stores without an industry specific computer system, you will not
be able to develop the benchmarks necessary to decide the appropriate
mix of driving revenue vs. driving profitability.
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