By Bill Scott, founder of StoreReport LLC & Scott Systems Inc.
Would you believe it? Another year is sliding down the proverbial tube of history. Here are some things to think about before you start your New Year:
I will remove every item in my stores that hasn’t sold in the past 90 days
70% of the merchandise in you stores is not making you a profit. You should identify these items, return them to your supplier, mark them down, make a tax donation to a charity or take them to the dumpster; and resolve to prevent your suppliers from sending you more of these products in the future.
Usually, “Shippers” is a dirty word. They contain some items that will make you a little bit of profit, and the rest will feed off of your bank account until you wonder where the money went.
I will make an attempt to manage my inventory by items
A good place to start is with your second most valuable asset, the inventory itself. Category Management has some value, but it does not help you to manage the individual items in your store(s).
Real estate inside your stores is expensive. The average convenience store has some 3,000 to 4,000 items on their shelves. Other retailers may have several times that quantity. Start out by understanding that most likely you could make more money in a smaller space with half the inventory you have today.
Typically, for a store that has 3,000 items, only 900 items are producing a significant income, 1,650 items are either costing you money or marginal at best, and 450 are just plain dead, and they would make you more money if you threw them in the dumpster than to let them occupy expensive selling space on your shelves. The only way to solve this problem is to know exactly what you have on your shelves, and you can do this by keeping an actual count in a spreadsheet, or by subscribing to a service that does it for you.
Too much overstock is the main contributor to out-of-stocks
Overstock camouflages holes that good sellers leave behind and prevent you from adding new products that will make you a profit. If you are selling one particular item two times a week, you don’t need a box of 48 on your shelf.
Beware of discounts
Consider what it may be costing you to give a discount. Don’t forget the loss of working capital in your evaluations. It’s easy. For a start, you can calculate the interest rate per day a loan would costs you to borrow the money you spent on buying in bulk, then multiply that by the cost value of the overstock in your stores. In the average convenience store that would be around $46,000. Every day, overstock lowers the expected profits by that much. After a certain period of time, its profit is completely gone, even if you do manage to sell it. But, if you don’t sell it, it’s a loss you will never recuperate.
Don’t fall for the old story that lots and lots of inventory makes you store(s) look good.
Most of the time it makes your store look like a yard sale. “But, my store will look picked over!” Another lie, perpetuated by those that want to sell you more stock. You can find plenty of other products that will sell well in your stores. If you can’t, redesign your shelves to make it look like the shelves are full. An empty box, with your dog’s portrait pasted on it is better than junk that’s costing you money.
I will strive to make better use of my employees
Like most convenience store retailers, you have two or three shifts. Take the number of employees you have and divide your stores into sections. Promote each employee to ‘section manager,’ and ask them to take responsibility for the section(s) they manage. Everybody loves a promotion. Have your store managers and supervisors grade them on each section’s cleanliness and presentation. This will also help to control stock levels. Once a week, give out a blue ribbon to be placed on the winning section and maybe a small gift or a coupon to use in your store, or a few dollars of gas to help them get to and from work, or if you’re a real Scrooge, just a pat on the back and a ‘thank you’ note from the CEO will do.
I will strive to provide my employees with valuable training
Employees work for pay, but they will run through a burning forest barefoot for praise. Realize that most of your employees are there for the pay. If you can give them something in addition that does not increase your costs, you’d be the better for it. Realize that payroll and payroll expenses make up a significant amount of your costs. By providing your employees with training, you will gain their loyalty and they will pay you back by giving you more of themselves.
I will expend more effort to incorporate my suppliers
Suppliers exist because you, and other retailers like you, provide them with business. By sending you stuff you can’t sell, they are shooting themselves in the foot. Don’t let them sell you inventory that’s still on your shelves. If suppliers would bring you just what you could sell between delivery cycles, they would make fewer deliveries and increase their volume. It’s a real win/win.
I will strive to keep my stores clean
Nothing costs you more money than a filthy restroom. A bad experience for a loyal customer will never be forgotten. Have your employees make a clean-up trip to the restrooms on each shift. More often if necessary.
I will keep my parking lot clean
Same thing here. Charge your employees with the responsibility of keeping the lot free of paper and debris. Don’t forget the condition of the pumps. Diesel nozzles are notorious for leaking. Call your pump maintenance people to keep them clean and functional. And please, put some paper in the MPD printer.
I will vow to allow more visibility
Get signs and storage away from your windows. Give your customers the gift of knowing they can enter your store without fear. Be sure your lot and your pumps are illuminated well. Talk to a lighting expert in your area and get their appraisal to ensure you have enough light. You could be losing a lot of nighttime sales from people who are afraid to exit their cars, especially women. Most important, don’t allow gangs to congregate in your parking lot. People who aren’t working need a place to meet. You don’t want your store to be that place.
Be highly suspect of so-called promotions
When it comes to promotions, keep this is mind. If there is money to be lost, it will be yours. Too often promotions steal from Peter to pay Paul. In this story, you are Peter. No kidding. I’ve looked at the data.
When a supplier puts something on sale, it usually costs the retailer, because it results with the loss of sales on a more profitable item, and you will have to sell the promotional items several times over to make up the difference.
Promotions should be carefully monitored to produce an overall profit. If your bottom line suffers, there is very little hope of you getting that money back. So, the next time your supplier suggests a promotion, asked them, “How much will it cost me?” Either they won’t have an answer, or they’ll talk about increased traffic. Just be aware, it is most likely they are doing the same promotion with that scoundrel competitor down the block, and if they aren’t, you will most probably be the loser anyway.
So, your competitor does more business. Fine! Let him be Peter for a while.
These are just a few things I have learned over the past three decades. Sometimes all it takes is a change in one of these topics to make a difference between profit and a loss. I am sure there are other things I have forgotten to mention, but this is a good checklist for a start.
Happy New Year!