How to find and keep good employees is a topic sure to garner an impassioned response from any retailer who is posed the question.  One thing is certain, there are no easy answers. From the discussions that I had with retailers on this topic one thing is very clear; the interview process is the most crucial step in hiring and retention process.

If you were to look back at good hires, I believe you would find that they all had impressive interviews and all seemed likely to adhere to company values and have a full understanding of the job being offered. Conversely, when shortcuts are taken during the interview process or circumvented in some other way, potential trouble often lurks ahead.

One retailer I spoke with insists on two to three interviews over multiple days with key management personnel. He strongly encourages all retailers to know the laws in your state and to get everything on the table by asking good questions.  Understanding the job description and time commitment are essential components that must be covered and well documented. Keeping good records as part of the personnel file is a must including signed statements from the employee stating that they have read and understand all aspects of the job description. This particular merchant has an initial review after ninety days and annually thereafter. Do not skip the annual review!

With regard to experience, prior experience is obviously a plus and is of course essential for key positions such as buying and store management. He offers that older employees offer stability and work ethic, but that there may be health issues to deal with. “Big personality” is key! The employee must be able to relate well to others.  People buy from people they like.

Another store owner I spoke with that enjoys low employee turnover emphasized that any potential employee must be able to relate and support the core values of the company. These values will vary based on the needs and overall mission statement of the company, but a list of five to ten key points that are central to the core of the organization should be adhered to. Obvious due diligence such as background checks, including criminal history and drug use, can also be helpful as well as references from previous employees. A potential employee at this retailer begins with a screening with the human relations department to make an initial determination if the applicant is a potential fit for the opportunity available. From there the applicant would interview the general manger and finally the department manager.  Throughout the process all interviews center around compliance with the core values. Any deviations or doubts from any interviewer can squelch the deal. Since most hires come from referrals from current employees, they already know the organization and already want to work there.

Living by the saying that “if you pay peanuts, you get monkeys”, this retailer chooses to pay a generous commission which is adjustable annually due to performance.  Store managers also use a weekly checklist for each employee designed to make sure that the salesperson is focused on doing the right thing and offering superb customer service. A perfect score for a month ends will earn the employee a bonus in addition to other incentives and spiffs that may be offered at management discretion.

Most retailers agree that any deviations from what historically is proven to work is probably not going to end well. Don’t shortcut the interview process, don’t make any quick decisions and pass if there are any doubts. There are no guarantees but decent pay, including the potential for incentives and bonuses coupled with an enjoyable work environment and good chemistry with your fellow associates goes a long way toward finding and keeping good employees.

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(Read this if you struggle to compete against on-line retailers or even vendors)

 

The largest shopping center in the world exists mere inches away from your customer’s fingertips. Though online purchases account for a growing percentage of retail sales, “about 80% of consumers still want to browse and shop in-store” according to The Wall Street Journal(WSJ) in a piece datelined December 30, 2016.  While the number of folks who have never purchased anything on line has dwindled over the past five years, Kantar Retail ShopperScape reports that “roughly 22 million households didn’t use [Amazon] in 2016”.  Research has also found that online purchases have a return rate of nearly triple the in-store purchase return rate.  All that said, the upside potential for brick-and-mortar shopping is pretty bright so long as you keep in mind what you are dealing with.

My Italian friends often say, “Keep your friends close and your enemies closer”. That advice couldn’t be more true when dealing with online retail.  Let’s explore some of the many things that can be done to compete effectively with online sellers.

Perhaps two of the more compelling reasons to shop in-store vs. online is 1) the in-store experience and 2) the personal interaction.  Let’s deal with the in-store experience first.

Gone are the days of simply putting goods on display, unlocking the front door and ringing up annual increases.  If this is your current merchandising and marketing strategy you are undoubtedly going to have a difficult time thriving – and perhaps not even surviving –  in today’s fast-paced retail world. Customers today demand an experience.  This can be everything from tastings for a wine shop or trunk shows for an apparel or shoe retailer, to product demonstrations and clinics for an outdoor or sporting goods operation. Authors can speak at book stores; artisans might discuss their work at gift shops. The point is that whatever you are selling, it is imperative to create excitement for your product and a connection with your customers through the in-store shopping experience. Remember, the “sizzle” is just as important as the steak-everyone has steak!

Next, let’s review the personal interaction with another human does. It doesn’t – and can’t – happen on line. People buy from people they like. Keep that in mind when you are interviewing sales associates. Do you like them? Are they friendly and outgoing?  Are they effective communicators? Do NOT put someone on the selling floor simply to have a warm body there. It’s simply too expensive these days.

The more sensory the experience, the more spontaneous the buying. Don’t believe me?  Walk through a Costco store on a Saturday and see how many product samplings you are offered. Even the most disciplined shopper among us has fallen prey to this marketing tactic. Some gift and home stores I am familiar with burn scented candles in the store. This hands-on approach of seeing, touching, tasting, smelling, even trying a product gives the brick-and-mortar retailer a huge advantage over the online competitor.  Car dealers are masters at promoting not only through the senses, but also by using emotional appeals.  The experience begins with your visual attraction to the sleek lines, then on to the new-car smell. The next level is how you feel sitting in the driver’s seat. Then finally the test drive with the salesperson’s appeal that “you deserve this car” or “this baby could be sitting in your garage tonight”.  Once you have succumbed to the power of this sensory and emotional maneuvering, you’re an owner.  All that’s left to do is the paperwork.

That example, translated from car buying, suggests that you become the local expert in your industry.  I work with an outdoor store whose motto is “Ask Us-We’ve Been There”.  Whether camping, hiking, boating, climbing, or back-packing, this store hires local experts who relate to what the customer is going to be using the product for. Think about it: Would you rather buy a pair of running shoes from someone who hasn’t run a mile in their life, or from someone who goes for a daily run before or after work?

When it comes to pricing, brick-and mortar retailers should know the online prices for the products and/or services you are selling. Unfortunately, these days, this includes shopping not only other online retail sites, but also many vendor sites, since they often sell directly to your customers. You must at least consider offering on-the-spot price matching whenever possible, and free shipping when it is economically feasible.

The idea that all shoppers will justify paying more to support a local retail establishment is indeed a noble intent.   However, I don’t believe it is sustainable over the long term.  About 80% of adults today have either a smartphone or some sort of access to the internet.  Today’s shopper knows what the prices are going to be and probably has done some homework prior to even coming in your store. When you can, post current online prices when you can next to certain items. Why not encourage your customers to do online comparisons? They’re going to do it anyway. We all do! This is not a suggestion that you seek out and post the lowest price possible; instead, it is a way to show your customers that your prices are reasonable and include the cost of knowledgeable and expert service, which cannot be provided online.

Traditional retailers also have another advantage over e-commerce only merchants. It is the opportunity to make another sale when merchandise comes back –  as it does nearly 30% of the time for online-only retailers. Use this to your advantage; you might even go so far as to stick a $5 coupon in the bag off the next trip to the store, just to counter any perceived inconvenience a customer experiences in making a return.

One more advantage:  You can give the customers a “new” experience every time they visit you. Don’t forget to keep the merchandise fresh and exciting. Change the window and in-store displays weekly and rotate current inventory on end caps. Above all else, manage your open-to-buy (OTB) and especially the inventory on-order. You always want to have a constant flow of merchandise landing in the store – new looks and products to excite and delight your customers. Remember: Nobody comes into your store to see what came in last year!

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Let’s be honest…who really likes returns? As retailers, you are in the business of selling merchandise, not taking it back, right? After all, returns take time and generally mean the customer had a negative experience with the merchandise or simply had a change of heart and now their problem is soon going to become your problem. Full disclosure here, that used to be my mindset. I dreaded seeing our bags coming back in the store. My hunch is that a lot of you may feel the same way.

Over the years, returns of retail sales have steadily increased with 9% of retail sales being returned, according to the Kurt Salmon consulting firm.  The latest figures available suggest that returns in 2014 hit $284 billion, up 6.2 from the previous year. Some attribute this increase to online shopping since 1/3 of online purchases come back.

I decided to poll a cross-section of retailers that I consult with to find out what their return policies are. I wasn’t terribly surprised with what I learned.  It appears that the smaller the volume a store does, the stricter their return policy is. The general consensus being that they feel they simply can’t afford a more liberal policy, thus opting for store credits in lieu of cash refunds and a tighter window in which returns are accepted. Larger volume operations on the other hand approach this issue with a completely different philosophy or so it would seem.   Larger stores in general, adopt the approach that “if the customer isn’t happy, they probably aren’t coming back”. They also seem to allow the customer a longer period of time in which to make a decision on the merchandise. Thirty days appears to be the norm.

Other discoveries from my unscientific poll were that final sale items were not returnable.  That seems reasonable to me, unless the product is defective in which case it should become a vendor issue.  Most retailers responded that any returns had to have the sales receipt and could not show any signs of wear. Again, larger volume retailers are a bit more lenient here. One store, in particular, actually advertises that customers can exchange footwear they have worn if the pair isn’t working for them within 30 days. A liberal policy like that takes away any fear a customer may have regarding the purchase.

Might a case be made that larger volume stores became that way over time because among other things, they were willing to do what the customer wanted them to do? Next time you are confronted with a return you are questionable about, try asking the customer what they would like you to do to make them happy.  If a store credit is going to annoy a customer to the point of creating hard feelings is it really worth it? To the stores that feel they must keep the money “in the store” it might be time to rethink this approach. I contend you keep more money in the store in the long run by making the customer happy. That may mean giving more cash refunds.

Looking at returns from another perspective we might see that the customer has made yet another visit to our store. How can we make this a positive experience for everyone? The customer had to spend their time and money to come back into the store to return something that they feel justified about. I will offer an idea that is sure to garner an eye roll from some.  Consider offering a customer a $5 credit “for their trouble” once you have completed the return/exchange to their satisfaction? That might get some very positive kudos on Yelp. Believe me, that $5. will come back to you in multiples. You have to give to get!

All Sales Are Final! Wow, that makes me want to buy…not!  How about something more customer-centric, such as All Sales Are Final When You Are Completely Satisfied. My belief is that smaller stores would grow their volume by actually promoting a more liberal return policy emphasizing complete customer satisfaction. Many smaller stores see themselves at the mercy of the internet due to its sheer magnitude as well as the whims of larger retailers. Believe me; tightening up the return policy does nothing to promote combat this.

I know of one merchant who took back a pair of shoes he never carried because the customer was adamant that the shoes were purchased at his store.  His mindset being, I can refuse this unjustified return and guarantee I will never see this person in my store again AND risk additional negative social media backlash or I can graciously accept the return, ask the customer what she would like us to do and hopefully turn a negative into a positive.  You might say he chose to lose the battle, yet win the war.

There are times when a retailer should mark down a customer. If you have a customer who habitually takes advantage of your return policy or is abusive to your employees, it may be time for them to take their business to a competitor.  Obviously your store is not a good match for this customer and in some  cases it is best to part company.

Revisit your return policy; talk with your store managers, sales associates, and even a few of your better customers.  Ask them if your return policy is hurting your business?  Remember however; never make a rule that affects the many based on the actions of a few.

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Do you ever wish that you could just turn back the clock when it comes to the Holidays? It seems like every December, my siblings and I harken back to Christmases past and pine for those memorable holidays of yesteryear.  We recall fondly the magic of the season, the gifts under the tree and the closeness of family, minus of course the dynamics that were sure to follow in later years.  We just wish December could be like it used to be.  I’m not talking about Uncle Ned passing out in his Yorkshire pudding from too much egg nog, or not getting the gift from Santa that was #1 on your list, but rather all of the fun happy times. We selectively block out what we perceive as negatives, and remember the good times through our own personal filters.

I believe that most retailers are guilty of this every single year.  Even the most disciplined merchant seems to have selective memory when it comes to sales and inventory forecasting during the Holidays. Can we all agree in principle that the years of December being dedicated to full price selling and clearance markdowns being taken in January are over and have been over for a long time? We are in a new era. This year we experienced greater discounting in December than any time that I can recall. MAP pricing violations were observed by retailers and vendors alike. I am aware of at least one vendor who ran afoul of their own MAP policy by breaking price on the company website, and expecting retailers to not follow suit. How crazy is this getting?

While the December of 2015 is still fresh in your mind, make a New Year’s resolution to commit to your buying plan knowing that you really have no control over factors external to the business.  Thinking you can manage areas outside of your control is like putting your inventory dollars on #7 and spinning the Roulette wheel.  You could get lucky, but most likely you will end up losing money. You can’t manage the weather, the possibility that a social protest may block your street and store entrance, or how the stock market will perform.  You do not know if the Fed will manipulate the interest rate, what the unemployment rate will be, if your health insurance premiums will change, how high the minimum wage will be, or who might win the Presidential election.  The point is to take control over the things you can manage.

I propose a complete shift in mindset.  Forget how you “think” or “wish” December business should be and plan for what it WILL be… a strong albeit Promotional month.  Begin by setting the stage with vendors NOW for a successful December next year.  I would suggest considering a breakdown of Holiday open-to-buy dollars for next year as follows: 30% allocated for new Holiday product, 20% reserved for reorders and fill-ins, and 50% earmarked for off-price buying. Naturally, this will vary based on the segment of the retail industry that you operate in.  This approach will enable you can compete on a more level playing field. With a slight paradigm shift, I believe December can become less stressful and more functional once again.

I wish all of you a Happy, Healthy, and Prosperous New Year!

Ritchie Sayner

(Are you Wishin’ and Hopin’ for a profitable year?…If this is you, read on then call me, I can help) 

If you are of the age that you can claim one-time ownership of a transistor radio, then you might just remember the song Wishin’ And Hopin’.  I recently heard this tune while listening to the “oldies” station on my car radio. Ironically, I had just finished speaking with a retailer who had used the exact same words as we discussed his merchandising strategy and year-end outlook.  The coincidence really struck me.

Dusty Springfield’s catchy tune reached #6 on the pop charts in 1964. Though Wishin’ And Hopin’ (W&H going forward), is much better suited for a song title than a business strategy, I still encounter many retailers who either fail to plan or who don’t effectively implement or execute their plan.  These retailers end up with W&H results, sometimes it works out, most of the time it doesn’t.

Let me lay out what I mean by the W&H strategy. The W&H retailer typically buys merchandise with no clear thought of how it might fit into the existing assortment. New arrivals are distributed among stores in a predetermined order and are seldom if ever transferred to balance the assortment. This ultimately leads to missed sales opportunities in some stores, while potentially creating unnecessary margin problems in others. In-season markdowns are not addressed in a timely fashion and fill-in orders are hit and miss. Promotional merchandise is not sought out regularly which would help the store build volume and margin. The W&H retailer probably doesn’t have solid marketing strategy either. Other typical traits might include not paying attention to freight costs, current market rates on leases, employee selling expenses and inventory shrinkage.

“Ready, Fire, Aim”

At RMSA, we see this scenario all too often. The W&H merchant enters each new season full of optimism, yet is often left disappointed at season end.  The retailer is unprepared to deal with day-to-day reality due to inadequate tools, poor training, lack of time, or insufficient man-power.  You can recognize this merchant by his “Ready, Fire, Aim” approach to most problems. This is management by crisis because the day is dominated by the urgent, never leaving time for the important.  In other words, valuable time is spent putting out small fires while the big blaze continues to burn out of control. Because of these and other problems, the W&H store is left wishin’ for a different outcome than it experienced in the past. Wishin’ customers will like the selections he or she has made and hopin’ that the store will be profitable at year end. This really isn’t much different than playing the lottery. Most of the time, you end up with the same results.

W&H is a reactive strategy, not a proactive one. A goal without a plan to achieve it is nothing more than a wish, and “hope” is not a strategy at all. Many times this retailer ends up with little or no profit season after season and year after year, barely staying afloat, and not growing or improving. The vendors and the landlords are the ones making the most money in this case, unfortunately…. not you.  In some cases, you are simply buying yourself a job!

There is still time left this year

If the W&H strategy sounds all too familiar, there are still things you can do now to prepare for next year. Make plans now to make sure that all old merchandise is discounted so that it will be gone by the end of December. See that seasonal classifications (i.e. winter footwear, gloves, hats, etc.) have manageable stock levels going into season end. If you haven’t already, take markdowns NOW on styles, sizes and colors not performing as they should. If you have OTB to spend for opportunistic buys (i.e. Off-price), contact key vendors to see what might be available to freshen the presentation during the transition period between now and the arrival of spring goods. Review your spring on-order once again to make sure all bases are covered and that you are not over extended. If business is good, pay off credit cards and attempt to reduce lines of credit. Review operating expenses and make adjustments if out of line with industry benchmarks. Review marketing strategies, including email blasts and social media, for effectiveness.

Make an effort on the items mentioned above and you won’t have to go through next year Wishin’ and Hopin’ for higher profits.

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 (Ritchie Sayner is a trained counselor for addictive overbuying. He is available for group therapy and interventions. The number for his 24-hour support group is 816-505-7912. If you are ready to take that first step, email him at rsayner@rmsa.com)

Are you a chronic overbuyer?  Over the past thirty plus years of working with independent retailers, I have become convinced that the continual practice of buying more than one can profitably sell is an addiction. If you engage in financially destructive merchandising behavior season after season, year after year, with the best of intentions only to end up enduring the same disappointing results, this article may be a lifesaver.  If this scenario applies to you, you are not alone. Misery loves company and you certainly have lots of it. The good news is that with a little help the success rate of recovery is quite good.

I have developed a recovery program for retailers that find themselves members of this group from time to time.  The test below identifies some of the warning signs of chronic overbuying. See how you score.

  • Do you often feel forced to markdown merchandise to generate cash to pay invoices?                  Y/N
  • Do you struggle with cash flow issues regularly?                                                                                                Y/N
  • Do you experience slow shipments because you owe vendors money?                                 Y/N
  • Do your customers “wait you out” because they know your store has huge sales?            Y/N
  • Have you ever heard customers say that your store always has “the best sales?”                              Y/N
  • Is it important to you that your reps like you no matter what?                                                    Y/N
  • Does your floor or backroom ever feel over-crowded with merchandise?                                             Y/N
  • Do you ever run out of places to display merchandise?                                                                  Y/N
  • Do you find yourself cancelling orders every season?                                                                      Y/N
  • Do you ever buy close-outs because you can’t pass up a “good deal” even though you
  • already have too much inventory?                                                                                                           Y/N
  • Do you ever feel pressure to buy because a rep has taken the time to show you a line?                 Y/N
  • Do you buy what you like and hope it is the right amount?                                                            Y/N

An occasional “yes” answer to a few of the questions above is probably no cause for concern. However, if you answered in the affirmative to half or more, this could be a sign of trouble. Continued overbuying can be a destructive behavior. I have seen it harm relationships, reduce credit ratings, and destroy businesses. Like most addictions, overbuying is treatable. The key point is that you get help. Not unlike other recovery programs, you must take the first step.  The 12-step program outlined below is adapted from other highly recognizable and successful programs. I have modified it to be applicable to the retail industry.

The 12-Step Recovery Program.

  • Step 1- Admit you have a buying problem and that it has become unmanageable.
  • Step 2- Accept that there is an answer outside of your store that can guide you in the right direction.
  • Step 3- Once you have found what you believe is the guidance your operation needs, make a decision and move forward.
  • Step 4- Implement a sales and inventory plan by store and classification and stick to it.
  • Step 5- Learn to say NO! if the line doesn’t appeal to you.  Remember, it’s your $$.
  • Step 6- Review your merchandise-on-order report monthly at the very least.
  • Step 7- Don’t allow substitutions without your prior approval and don’t accept goods past completion date without a discount.
  • Step 8- Change the misguided belief that in all cases you need more to sell more.
  • Step 9- Retrend your sales forecast regularly.  Look for breakout classifications as well as areas beginning to slow.
  • Step 10- Avoid the naysayers. These are the people that want to keep you locked in the old behavior.
  • Step 11- Reduce the amount of preseason orders. This is where the problems start. You know you are going to need money to fill in hot sellers as well as some promotional buys.
  • Step 12- Don’t’ be too hard on yourself.  Relapses can happen and you are likely to fall off the wagon more than once. Stay the course. This is a career-long solution.

Of all the steps outlined above, step 10 might just be the most challenging. If you are the company president or owner you are constantly surrounded by enablers.  These are the people that like you the way you were before. In many cases, not all obviously, but several…vendor reps are the biggest enablers. They don’t want you to change. The more you overbuy, the more money they make. This is a great example of codependent behavior. Your own customers can be enablers.  You will hear it in their comments, “we used to just love your sales”, or my favorite “are you going out of business, you don’t have as much merchandise as you did before?” This comment can be frightening for some retailers until they get comfortable with the process. The store’s buyers can be enablers. Buying by classification takes getting used to. It’s a new skill and buyers are creatures of habit. They are not fond of change. They will tell you they like things better the “old way”. The “old way” was when buyers had free reign and could buy what they wanted, when they wanted without accountability. Make no mistake, this program is all about accountability.

 (To schedule your private confession and receive absolution, penance,and suggestions for retail salvation contact Ritchie@write4retail.com. No tithing required)  

 Seven Deadly (retail)Sins 

The Seven Deadly Sins, first identified by St. John Cassian and later refined by Pope St. Gregory the Great, have been with us for more than 1500 years. “They provide us keys to understanding our faults and the actions that result, and a framework for self knowledge.” The original Seven Deadly Sins were Pride, Greed, Envy, Lust, Sloth, Anger, and Gluttony.

While I would relish the challenge of drawing parallels between the original list and shortcomings evident with some modern day retailers, I will resist the temptation to do so.

What I will offer instead is my list of Seven Deadly Retail Sins along with their corresponding virtues.  You may find yourself guilty of one or two or perhaps several. That being the case, one can rest easy in the knowledge that along with repentance comes total redemption.  Hopefully, this list will prompt you to come up with your own personal list of retail maladies which is the ultimate goal.

My Seven Deadly Retail Sins are Overbuying, Underbuying, Not Attending Markets, No Markdown Strategy, Not Controlling Operating Expenses, Under Utilization of Technology and Poor Planning.

Let’s consider these individually.

Overbuying

This one should be obvious. The consequences of this “sin” include reduced margins due to high markdowns, cluttered stores, confusing assortments, stocks that are out of balance, slow turnover, poor cash flow, and increased expenses.

Virtue:  Following your open-to-buy plan

 

Underbuying

Perhaps not as obvious, but a “sin” none the less.  When underbuying occurs, sales opportunities are missed.  This problem is generally caused by lack of proper merchandise planning at the classification level. Examples of underbuying range from not responding to needed reorders to not buying narrow and deep enough to positively impact sales volume.

Virtue:  A bottom-up sales and inventory forecast at the class and store level.

 

Not attending Markets

Not attending markets or tradeshows on a regular basis is a retail “sin”.  This is the perfect opportunity to keep your store fresh and one step ahead of the competition.  New lines can be discovered, orders already written but not yet shipped can be reviewed, educational seminars can be attended, vendor relations can be nurtured, and major retailers in the area can be shopped.

Virtue:  Attend trade shows and markets two to four times a year depending on industry segment.

 

No Markdown Strategy

Markdowns in and of themselves are not a problem.  Markdowns taken at the wrong time, in the wrong amount and for the wrong reasons are a BIG problem.  Excessive markdowns taken at season end can be very costly if the classification was overbought to begin with. Proper monitoring of sales and inventory during the season can help prevent costly markdowns at season end.  Remember, “The first markdown is the cheapest” so make it count.

Virtue:  Have a well developed markdown strategy for your store.

 

Not Controlling Operating Expenses

If you pay too much for rent, chances are the only ones making money will be the landlord and the vendors! Review your lease(s) annually to make sure you are paying market or preferably below. Most retailers only look at their lease when it comes up for renewal.  This can be a costly mistake especially with today’s business climate. I strongly recommend hiring the services of a good lease negotiator to act on your behalf unless you are very skilled in this area.  They can usually save their fees several times over and you will know you are not leaving money on the table. Review payroll and other expenses annually and compare to industry benchmarks.

Virtue:  Develop an operating expense budget and review at least annually.

 

Under Utilization of Technology

There was a time, not long ago when only a hand full of cutting edge merchants embraced the latest technology of the day.  Today, not understanding and using technology puts today’s retailer in jeopardy of being left behind.  Point-of-sale systems not only track sales and inventory, but can also help manage work schedules and customer buying habits. Social media outlets help today’s merchants get their message out quickly and cost effectively. Store web sites provide store information and can serve as a vehicle for additional sales especially when linked to a vendor’s site.  Good POS systems are a major investment.  All too often the investment in them is underutilized resulting only in bar-coded tickets and electronic cash drawers.

Virtue:  Take the time to understand and maximize all forms of technology available to you.

 

Poor Planning

Poor planning is almost as dangerous as no planning at all. From a forecasting perspective, poor planning can be to blame for many of the “sins” described above. From an accounting perspective, poor planning can lead to poor cash management which is the life blood of most retail operations.

Virtue:  Spend time developing, implementing and revising all planning aspects in your company.

 Just as no human is perfect, no retailer is without occasional “sin”.  Confession of these and other infractions, as well as implementation of the virtues described above will certainly help put you on the pathway to eternal salvation and secure your place in retail heaven.

Go forth my retail brothers and sisters and “Sin” no more!

Ritchie Sayner

Retail Reverend

(For help with your store’s incentive plan, contact me at Ritchie@write4retail.com)

Nearly every retailer that I have worked with has asked me at some point if I can help them develop an effective incentive structure that is also simple to manage.  The answer is yes, but there are some basic rules that must be followed for a bonus plan to work.

Begin by deciding what you are trying to accomplish. Are you creating a program for the sales staff, the buying department, or the management personnel?  A one size fits all approach may not work for all three. In some stores, these positions may even be combined. For the purpose of this discussion, let’s focus on a buyer/manager scenario. We will assume that the buyer in this case is responsible for the department’s sales, assortment and quantity of products being offered, maintained margin and shrinkage.

Be Clear and Realistic

When introducing any incentive plan, it is important to make certain that the rules are, attainable and measurable, and simple to understand.  A plan that is too complex or loaded with caveats and disclaimers soon takes on an almost “gotcha” like feeling.  Keep it simple and straight forward.  Remember, the goal is to reward an employee that has achieved his or her corporate goals.  Programs laden with loopholes or “outs” for the employer only serve to reduce morale and are therefore counter productive. Make sure the goals set are realistic.  Sure you want to challenge and grow, but creating an unattainable target may in fact cause the employee to dismiss the plan altogether.  Benchmark numbers must be objective not subjective; they must also be measurable. A point of sale system or merchandise planning program that captures this data may be credible sources from which to derive needed data.

I once developed a program for a store that had a rather significant payout if everyone achieved their preset goals.  When the program was first proposed however, the owner explained that there was no way such a rich payout would ever get his support. “We’ve never done anything like this before”, he said. “What if we can’t pay the bonuses?”

Built-in Safeguards

What finally won his approval was the fact that the program had built in safeguards. If objectives were not attained, bonuses would not be paid. If, on the other hand, all initiatives were met, the increase in sales and profitability would offset the generous payout several times over. What he soon discovered was that his employees became more motivated and more enthusiastic about their jobs. They actually became engaged in the process which was the ultimate reward. They seemed to embrace the structure the plan provided as well as the potential of monetary gain.

I prefer a four-part program because it satisfies all required objectives and is a win-win situation for the store and the employee.  The four parts of the program are as follows: sales, maintained markup, turnover, and shrinkage. Each component is worth a certain dollar value. The dollar amount is arbitrary, but needs to be something substantial.  I will use $1000. to illustrate how this works.  The owner and the employee arrive at a sales goal for the upcoming year that fits into the company’s overall growth plans. Previous sales history will be helpful is establishing these goals. A maintained markup goal is then agreed upon followed by a turnover objective for the classification, department or store.  A shrinkage percentage is the final piece of the puzzle. At the end of the year, bonus money is awarded for all met objectives. If an employee achieves all four objectives, he/she would then receive $4000. If only two objectives are attained, then only $2000. will be paid out.

Variations

I have experimented with variations of this premise that work well.  One idea is to use GMROI as a substitute for either the turn or margin objectives if it works in the employee’s favor. This gives the plan added flexibility as the employee can substitute the achieved GMROI goal if either the turnover or margin goals have been missed. Another option is an additional bonus which I refer to as a “kicker”.  If all four objectives are met an additional $1000. “kicker” is paid bringing the total bonus payout to$5000.  If three out of the four points are met, the “kicker” is $500. If fewer than three goals are met, there is no additional bonus money available. The “kicker” encourages focus on all facets of the plan.

Checks and Balances

A common mistake on incentive plans is to pay on sales only.  This can be disastrous if the sales are generated through markdowns or aggressive discounting.  If the store pays on gross margin or maintained markup only, there is no incentive to improve turnover and therefore cash flow. If turnover is the only consideration, the objective might be reached at the expense of margin.  A combination of sales volume, margin improvement and turnover protects the store, thus insuring profitability, while providing incentive to the employee.

Review in Private, Pay in Public

Always conduct the review when you say that you will.  Employees expect this and count on it. Review should be conducted privately and should not be put off.  Areas in need of improvement should be addressed at this time.  For future reference, it is a good business practice to keep signed and dated copies of each review within an employees personnel file.

Remember the saying your mother taught you about it being better to give than to receive? You now get the best of both worlds.  The fact that you are paying bonuses at all indicates some level of success. Too many stores miss the opportunity to celebrate employee achievements. Make the payout a celebration.  What better way to instill morale than to recognize an employee in front of his or her peers for a job well done. Perhaps a staff meeting or even a rewards dinner including significant others might be in order. The ultimate goal should be to pay out maximum bonuses to all eligible parties. If you are able to do this, you will not only be rewarding the employees that helped you achieve the corporate goals, you will be setting the stage for even greater results in the future through the motivation, recognition, and job enrichment that a well managed incentive program offers.

(For help with your store’s class structure contact me a Ritchie@write4retail.com)

Most retailers today use some sort of structure by which to assimilate, organize and analyze sales and inventory data. The term used to refer to this process is classification merchandising.  Although the importance of classification merchandising was recognized decades earlier, it wasn’t until the mid 1960’s that its usefulness came into vogue. Practical applications got jumpstarted when retailers began using computers to crunch raw data to create sales and inventory reports.

By definition, a classification is a “natural, separate, and distinct grouping of merchandise within a department.” Items in a classification must be kindred, meaning that they would all have the same end use, similar markup and turnover goals as well as like selling patterns.  Sometimes classifications and departments are referred to interchangeably, although this is not actually correct.

Dollar Control

Classification merchandising is not to be confused with unit management or assortment planning. It is a dollar control process. Information needed to render a classification system usable includes sales, receiving, price changes, transfers, returns to vendor, inventory, and merchandise on order.

Dress shoes, casual shoes, boots, sandals, accessories are all examples of potential classifications.  Let’s look at “boots” as a classification more closely.  Certainly there are several types of boots. Western boots for example are completely different from winter boots, which are altogether different from hiking boots, which are not the same as work boots.  Sales volume or percentage of sales done in each area, would most likely dictate if classifications require separate designation.  In certain situations, “boots” might actually be a department split typically by gender as shown in the example.

Dept. 1- Boots-Women

Class 1A Women’s western boots

Class 1B Women’s winter boots

Class 1C Women’s hiking boots

Class 1D Women’s fashion boots

Avoid Generic Classifications

Combining all boots into one generic classification should be avoided as it would render the data useless due to the differing end uses of the products, sales cycles and turnover rates.  The only time this should be considered would be if store volume in this area didn’t warrant further breakdown.

Dollar open-to-buy plans are controlled at the class level.  Fast selling classes should always be awarded open-to-buy even if other classes are overbought.  While sales gains in a given class justify expansion of the class or reordering hot selling styles, a declining sales trend is cause for corrective action which might include markdowns, order revisions, vendor returns, spiffs, or remerchandising of displays.

Classifications over time become trendable and predictable.  Winter boots typically sell from September to a fashion customer on into January and February to the sale customer. This cycle is repeated every year, more or less, depending on variables including weather, merchandise assortment, and economic factors.

Common mistakes in classification merchandising include “robbing Peter to pay Paul”, not remaining consistent, being over-classified, and treating brands as classifications.

It must be human nature for buyers to want to rob Peter to pay Paul. By that I mean funding the overbuying of one classification with dollars from another classification.  This is wrong on several levels.  First off, classifications are individual revenue centers in a store, they are autonomous.  A buyer who would attempt to justify overbuying a boot classification by taking money from say the casual class is similar to a grocery store buying too much bread and having no budget left for bananas.  It doesn’t work that way. If the boot class needs more open-to-buy, based on expected sales trends, anticipated “hot” items or new vendors then the boot classification plan should be revised to adequately compensate for the additional business that is expected.  Taking money from another class runs the risk of diluting the class and missing potential sales.

Consistency Is Key

A pitfall in classification merchandising is not remaining consistent with your categories.  Avoid the temptation to call a something a casual shoe one season and a similar item a dress shoe the next.  Another problem occurs when a style is purchased in a particular classification and once received ends up in a totally different classification.  To solve this dilemma, a store should use its own purchase orders with class numbers clearly visible.  This will eliminate any confusion when goods are received and ticketed.

Have clearly defined classifications set up in the organization and adhere to them.  That is not to say that categories can not be split, combined, eliminated, or new ones added as business trends warrant. Classifications should typically be reviewed at least annually. I have seen several examples of stores having so many classifications that any reports generated are useless. Computers are a great help in gathering data, but when setting up a classification system remember the adage, need to know vs. nice to know. Computer systems today are so powerful that an over classified store ends up getting data that they never use. It becomes akin to drinking from a fire hose. A well designed classification structure should separate the trees from the forest, but not the leaves from the forest.

Avoid setting up a class structure by brand or vendor.  Planning at the class level is initially done prior to buying for the season.  Creating an open-to-buy plan by brand lends itself to all sorts of problems. One significant issue happens when a class is trending up and the brand is trending down.  If an increase is planned for a given brand and it is later determined that the current season’s line didn’t warrant an increase you have no plan. Hot vendors can cool and weak vendors can become important.  Class history continues from year to year and readjusts based on your customers purchasing trends. Planning at the vendor level is a function of assortment planning not classification planning.

Pet Peeves: Things Retailers Do That Really Bug Me

(Please share your retail pet peeves with me at Ritchie@write4retail.com. This is your chance to vent about things that might bug you.)

Anyone who has been around the retail game for any length of time probably has subconsciously compiled a list of minor annoyances that drive them bonkers.  These would consist of the little, common sense things that you notice in stores and ask yourself, “Why would someone do that?” Here is my list of pet peeves that some retailers do that well, simply bug me. Maybe they bug you too?

Where ever I go, I notice store windows. Have you ever visited a town and noticed a store that feels they need to cram a sample of everything they carry in the front window in order to get their message out?  This drives me out of my mind. The confusion and clutter created by doing this actually has the opposite affect on shoppers. They don’t get any message at all.  When it comes to store windows and in-store displays, keeping things simple is always better.

Call attention to THAT?

Sometimes the natural tendency for retailers attempting to move merchandise that no one wants to buy is to actually give it more attention.  They do this by putting the slow moving goods in the window, creating a display in the store or worse yet, spending advertising money to promote a “dog”. This is a failed strategy void of all common sense. Sure we need to rid our stocks of problem merchandise as quickly as possible, but we don’t need to show the world our problems by highlighting trouble merchandise.  You can’t grow volume by constantly focusing on what no one wants to buy.  Volume is built when stores feature what customers want now!

What would happen if you built a house without an architect first drawing up a blueprint? Unless you were very lucky, the result would likely be disastrous.  Yet this is exactly the gamble that retailers take when they buy without a well constructed merchandise plan. Unless the retail guardian angel intervenes, more often than not, stocks will be out of balance leading to stifled sales and missed buying opportunities. Overbuying is also likely to occur.  As a result, poor cash flow, high markdowns and slower turnover will prevail.

Have you ever known of a store owner (or buyer) that buys a little bit from every vendor that calls on him or her?  These are people that have a hard time saying “NO”! They don’t want to hurt anyone’s feelings, especially since the rep came all the way to the store “just to show me the line”. Well, that’s his job, and yours is to buy a well balanced assortment that has meaning to your customers. When you buy a little from everyone, you end up with a whole lot of nothing.  This practice leads to overbuying, duplication, and confusion to the customer. In addition, the lines are not meaningful to the store and conversely, the store is not important to the manufacturer.

Don’t Hover,  Do Be Knowledgeable

I hate going into a store prepared to buy and get ignored. It actually makes me mad. I don’t need to be hovered over, but I do expect to be greeted cheerfully when I walk in and have a knowledgeable salesperson available to answer any questions I may have. I know we are all busy so I hope that’s not too much to ask.

I like to be sold.  I understand the sales process and I appreciate other sales professionals that do to. It matters not to me if I am buying a pair of socks or a new car. I want to be sold!

Don’t just read the label to me when I am asking a product related question, tell me something I don’t know.  Providing extra information adds value to my shopping experience and makes me feel better about my purchase.

It drives me nuts to go into a store and see a four-way display fixtures jammed with three times more merchandise than it was ever intended to hold. Typically the same display will also be holding multiple lines, styles and even colors that don’t go together. This merchandising technique usually is associated with an over buyer or at the very least an individual that does not understand how vital a component visual merchandising is to increased sales.

How’s Your Presentation?

When I see empty racks, shelves or other fixtures lacking inventory I could just scream. With expenses and competition being what it is today, it is so important that retailers scrutinize their merchandise presentation at all times in order to maximize sales.

Cluttered and hard to read print ads are simply a waste of advertising dollars. They too drive me crazy.

I equate a dirty store to a lazy owner. Floors should be mopped or vacuumed daily. Racks should be dusted and don’t forget the tops of the glass cubes.  They are huge dust gatherers.

Hand printed display signs are the absolute worst. I don’t care if your printing is exceptional. A professionally printed sign says a lot about your image.

When I go into a store with ridiculous pricing, the veins in my neck bulge. This is the store where the owner didn’t set the retail price and told the marking room to take a certain percentage markup. In this store, you will find prices like $42.37 next to something marked $36.84.  What’s that all about? You will find a similar approach to pricing at this store when the sale price is literally 1/3 off the original price.  I am talking 33.333% off.  $36.84 now becomes, you got it …$24.68. Simply ridiculous!

These are just some items that have been bothering me for a while.  I feel much better sharing them with you.  If I missed anything that bugs you, shoot me a quick email so that I can update my list.