Down to Business is a weekly small business advice column featured in The World Newspaper, originally published online by the Oregon Small Business Development Center Network, and republished here with permission.
Q: How do I make sure my holiday sales season is profitable?
Many retail businesses rely heavily on one season of the year—the holiday season—to sustain their cash needs for the full year. But getting caught up in the holiday sales season can cause more harm than good. At this time of year, retail problems abound: unsold inventory, too few customers, unprofitable pricing, shoplifting, employee theft, bad checks, and on and on. If you’re experiencing cash flow problems, they may be caused by any number of these holiday season “Grinches©”. Luckily, it can all be staved off with some preventative planning:
Unsold inventory can be the result of buying too much or not stocking the right items. If inventory does not turn (sell) regularly, cash has gone out for the purchase but the corresponding cash inflow has not happened.
One alternative to solve overstocking problems is to ask customers what they are looking for. Study industry trends, then make buying decisions based on what is most likely to sell in your market, rather than on the price break you can get for buying a large quantity. Creative use of shelf space can make a store look full even though the overall value of inventory on hand is reduced.
Customers choose to shop at retail outlets because of the value they find in the products, because they enjoy the customer service, or because they like the convenience of the location. Small town retailers must compete with the selection customers can find out of town or online. A common lament is: “I carry that product for the same price, so why did my customer go out of town?” The only way to answer that question is to ask customers why they purchase where they do, and then act on the information the customers provide. What other products or services would bring them into the local store to buy? What value do they feel they get elsewhere?
Unprofitable pricing can come from not knowing all your business costs. It’s easy during the holiday season to get caught up in slashing prices in the hopes of attracting more customers, but the numbers don’t always add up. How many sales must be made every day or every week to cover all of your operating costs? Analysis of financial statements should be done at least quarterly, and accountants can help determine if products are priced profitably.
Shoplifting is a national problem that adds an average of $150 per year to the costs each American citizen pays for products. It is estimated that a theft is committed every five seconds in this country. Shoplifters come in all age groups, races, and economic levels. Fortunately for retailers, most shoplifters are amateurs and easy to spot.
Small town retailers cannot afford even small losses to theft. For example, a store with a 3 percent profit margin would have to sell an additional $1,200 worth of merchandise each year to recover the daily loss of a ten-cent item.
The best defense against losses to shoplifting is deterrence. Educate employees on how to spot shoplifters (workshops are often available through business groups and community colleges). Plan the layout of the store with deterrence in mind.
Employee theft can be even more devastating than shoplifting, because an employee is someone you trust to help your business create sales and profits. The best defense against employee theft is to use good hiring practices. Contact your attorney to be sure you understand the legal issues around termination of employees before accusing someone of stealing and firing them.
Bad checks become more common when the overall economy is tight, and it is expensive to recover losses from bad checks. Often financial institutions and collection agencies have programs for collecting bad checks. The law provides avenues of recourse for business owners to pursue. A good starting point is to contact your banker for information about the programs they provide.
All businesses face challenges that can be at the least irritating and at the worst devastating. Planning ahead, analyzing financial results, and working together with other businesses can provide tools to resolve problems before they kill a business. Don’t let the “Grinch©” steal your business—use all the resources at your disposal.
If you have a small business question for Arlene, you can reach her at email@example.com.