Are you focused on the right numbers?
While there are many great business books, one that still stands strong is Good to Great by Jim Collins. If you haven’t – worth a couple reads. While the examples are somewhat dated – the principals are fundamentally spot on. Which leads me today’s topic. I received a question last week. The Retailer wrote – “I am losing my shirt on most products. I can’t be competitive with all the web competition. What’s do you suggest?”
OK, that is a loaded question with a whole bunch of answers. But let’s quickly focus on the products sold. Back to the book. In Good to Great – Jim talks about knowing what drives your economic engine. Straight from the book:
“What drives your economic engine? All the good-to-great companies attained piercing insight into how to most effectively generate sustained and robust cash flow and profitability. They discovered the single denominator-profit per x-that had the greatest impact on their economics.”
Ask any retailer “What’s important to your business financially?” Most retailers are extremely quick to say sales. Need to drive sales. Need to grow. Need to sell more. Need to sell more than last year. Sales are flat. Sales are down. Had a good sales weekend. The sale Monday was great. Last week’s sales were off. Big sale the weekend. Last weekend. This week’s sale…. I could go on. Heard these? Said a few yourself? Doesn’t really answer the question – does it? However, it quickly reflects the top-of-mind focus. That is concerning. Because that quagmire of responses are all top line specific. Which screams sales at what cost? Now obviously, revenue is a huge piece – seriously! How profound. But again, at what cost. What if you had a $10,000 day but your net (including all COGS including shipping, commissions, and marketing costs) was $1,500. The next day you had a $5,000 day but the all-in net was $2,100. See the angle here. But I cringe when I hear things like “I’m just going to roll in my shipping costs into to the sale price”. Or “I can offer a no tax sale – I just increase the price to offset the tax”. Mind – blown. That’s genius. I bet no one has thought of that. Oh, wait. Have you ever looked at your pricing in comparison to say, Wayfair? Other sellers on Amazon? So again, if you are really gearing to compete on top line revenue only – and feel you are losing your shirt – you probably are. Time to define how you should view your “economic engine”. Because selling simple goods and hoping to remain competitive and viable is probably not the single-solution you have been looking for.
A couple things to really understand:
- What are your top margin products (again all in costs accounted for)? Are these products also part of your top margin category? Or do they represent a category that you should be stronger in – using those products as a road-map?
- Have you focused your offerings on products that turn? How long has it been since you cleaned house AGGRESSIVELY and stocked the right products (again not just sales based)? (I’m not talking about adding a few items to the clearance room. I am talking a blow out at painful prices.)
- Who are you really competing against? Maybe it is time to pick a slightly different fight. Custom order/DYO is one that comes to mind. How about more specialized lines?
- Are you working with vendors that have a grasp of their retail channels? Or are you continuing to push a rope? Maybe it’s time for a change. When I hear a vendor has 1000’s and 1000’s of dealers – often not including everyone they have added that offers their line „online“ – I panic! It’s probably the wild west.
- Are you doing a true cost of goods? Landed cost is one thing, but I am an advocate of also deducting all commissions due on the sale as well as a % of every sale dollar for marketing. Give it a try. Don’t panic. Now adjust.
Retail is alive and well. There is no silver bullet. No magic success pill. The landscape is just fluid and often unpredictable. Adapt, change, move, adept, learn, change. Retail on!