This article provides a checklist for retailers to develop business strategies within the parameters of their personal retail philosophies.
Business Strategies for Retail Stores
Retail business strategies are a reflection of your personal retail philosophy. Generic solutions to your strategic issues may not be appropriate for your particular store. This checklist provides a general framework for addressing the more important strategic issues confronting retail stores. Using the framework, you have the flexibility to develop your business strategies to grow loyal customers and achieve competitive advantage within the parameters of your retail philosophy.
Advertising Strategies
1. Customer Profile. Build a profile of your target customer before you develop strategies for that customer. The content of your appeal should be specific and relevant to your target customer.
2. Advertising: Few retail stores survive without advertising. Relying on word-of-mouth to drive store traffic is risky. New store advertising should focus on creating store awareness. Shift your advertising to promotional advertising as soon as you are satisfied you've established a presence in the market.
3. Best ways to advertise: Use media that effectively reaches your target audience for the least amount of expenditure. Mass media could be useful during the start-up phase of your campaign. It helps to achieve broad reach and build awareness with a mass audience. Use more targeted media for continuity advertising that will allow you to zero in on your customer base with messages relevant to your base.
Include the Yellow Pages phone books in you media mix. This is the go-to source for shoppers looking for specific types of stores. Consider using the online edition of your local newspaper. It is inexpensive. Pop-up banner ads are annoying because they alienate more than they promote. Place your ads in the news, sports or leisure sections. You get more mileage for the dollars with far less clutter.
Consider having your own website. Your website gives you an ongoing way to communicate with your customers. Keep your website content fresh to keep your customers coming back to see what's new; nothing is worse than a website with stale content.
4. When to advertise: Schedule your advertising to start two to three weeks prior to a scheduled promotional event. This gives your customers sufficient time to plan ahead. Do not push the advertising out too far as it will lose the sense of immediacy and customers tend to be forgetful. Do not start you advertising too late because that increases the likelihood your customers will not see your ad before it's too late to react.
It makes good sense to schedule your promotions to coincide with gift-giving and seasonal holidays. If considering monthly sales events, beware of the wear-out factor! Promotions should be special events. When you train your customers to accept you are always on promotion, they may not react with any sense of urgency. Many retailers schedule their promotions to coincide with paydays and tax refunds when customers have money to spend.
5. How much should you spend on advertising? Many experts in the industry use a rule of thumb figure of between 5 and 10 percent of annual sales. Another approach is based on affordability. It uses a formula that takes into consideration your fixed rent expense. The affordability approach drives your ad budget closer to the 5% figure rather than the 10%.
Your advertising investment ultimately resolves around your retail philosophy. Check your industry averages to see what your competitors are spending.
Merchandising Strategies
1. Pricing strategy. Pricing is a function of your retail philosophy relative to what your competitors will allow. Your options are to price to yield profit margins below, at or above the competition. Regardless of your retail philosophy, you have no choice but to generate profit margins sufficient to cover your operating expenses. Temper your retail philosophy with an awareness of the reality of your competitive position in the market. Given a strong competitive position, you can pursue the low price option to harass your competitors; or the high price option to maximize profit.
Many retailers with strong competitive positions and a view toward the long term opt to harass their competitors. When your competitive position is average to weak, avoid the high price option altogether as you run the risk of having no customers. The exceptions are unique items (impulse items) that defy comparison but yet are not your main attraction. Price these items at whatever the market will support
Determine and independently confirm the strength of your competitive position and the demands of your market prior to executing a pricing strategy that may not be appropriate.
2. Managing your inventory: Typical retail store inventory should turn over an average of 5 to 6 times a year. This general average will vary by industry. Check to see what the average turnover rate is for your industry. Take active steps to clear out slow-moving stock when your turn rates are lower than your industry average. This requires a good inventory control system and an effective strategy for stock rotation.
Lower the prices on slow movers on a gradual basis until the inventory is gone. For example, if the normal retail on a slow mover is $5 and your cost is $2.50, lower the price to $4.25 for a month. After a month, reduce the price further. Then, keep reducing until the item is finally sold.
Calculate your 12-month inventory turnover with the following formula:
Cost of Goods Sold/Current inventory = Inventory Turnover
Example: Cost of Goods Sold = $1,000; Current Inventory = $175; Inventory Turnover = 5.7.
3. Sales per square foot: Average sales per square foot of retail selling space will vary by industry. Check to see what your industry averages are and use these as guides to keep score on your performance relative to your industry averages.
4. Space allocation: Store layout and design is as much a science as it is an art. When done poorly, it will hasten the death of your retail store. If you are unsure of your merchandising abilities, consult with a professional merchandiser. This could be the best investment you make.
The following are a few merchandising basics to guide your thinking: 1. Security: strategically install video cameras and fish-eye mirrors to prevent shoplifting. Keep small and expensive items in glass cases under lock and key. 2. Most important items: give these items prime store locations. 3. High margin impulse items: give these items high-traffic locations. 4. Related items: promote coordinated purchases by displaying related items next to each other. 5. Related departments: group related departments together to promote coordinated purchases. 6. Store atmosphere: considerations such as store décor, lighting and fixtures, music and scent should come together as a unified whole to make the shopping experience invigorating and delightful; to encourage return visits.
Other Issues
1. Payroll: Try to keep your labor expenses variable rather than fixed. Do this by using the services of temporary agencies to schedule help when you need help, during your peak selling periods. 2. Financial: Do a break-even analysis to determine your store's must-do sales requirements at different sales points and profit margins. Manage your cash flow in a manner to be cash rich rather than inventory rich. Consider using credit card financing to enhance cash flow if the bulk of your sales transactions are by way of credit cards.
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