Retail sales during the Thanksgiving and Christmas holiday season are followed by the news media very closely. This is because consumer spending is a key economic barometer and the annual holiday season accounts for a large percentage of total annual retail sales. Some estimates are that the fourth quarter retail sales account for more than 30% of total retail sales reported by department stores, specialty stores and mass merchandisers. The percentages can vary widely. For example December sales for jewelry stores account for 23% of the total annual sales.
“This November, (same-store) sales are going to be incredibly important to gauge the state of consumer spending, and thus fourth-quarter earnings and stock trajectory, and it’s also an important statement about the economic recovery,” said Deutsche Bank analyst Bill Dreher.
Comments like this from Bill and others may not be accurate. I learned how to analyze retail performance from experts responsible for running multi-billion dollar international businesses. These lessons helped me tremendously in operating my own retail business and in my business consulting work with other retail companies. Consider the following:
Same Store Sales Can Be Very Misleading
Same store sales are when you compare the sales in one period, for example November, with the sales from that same location the previous year. Seems simple enough but it is not always straight forward. For example, consider one store. What is your conclusion if the store just opened the first of November last year or if a major competitor closed a location near you this year? There are many variables that can affect same store sales and you have to be careful in knowing you have true comparability.
Consider 2009, the same store sales that will be reported this year are being compared to 2008 which is considered one of the weakest retail sales periods ever. At the company level a moderate increase in same store sales this year may not be a reason to celebrate except that of course it is better than a decline. Regardless of the results, retailers must go deeper than looking at the aggregate numbers. They must keep “peeling back the onion” until the lowest common denominator is evaluated and that is at the item level.
Same Store Sales Are Not A Direct Indicator of Profits
Many retailers promote heavily in the holiday season. This is part of the marketing funnel. Hot items sold at or below cost are used as lead generators. The Internet has educated shoppers on finding the best deals. This has resulted in add on sales dropping which means more of the sales being reported on a monthly basis have lower profit margins.
Keys To Successful Retailing In This Economy
First point is the foundation of a profitable business in any industry is largely the same. Companies make money when they offer what people want at a profitable price. In retail, customers often want a shopping experience that goes beyond price. For example, a recent testimonial from a customers experience on Black Friday demonstrated the success of a much smaller retailer with this customer vs. the major competitor. While having a slightly lower price for the laptop offered, the major retailer did not have any “unallocated laptops” at 5 in the morning even though the item was heavily promoted. On top of that the crowds there were not pleasant to navigate. The competing smaller chain, had inventory available and a more pleasant shopping experience. So you know who got the business and a repeat customer.
Off line, location is increasingly important as well as the overall appearance inside and outside. Large retailers win the game store by store. When demographics and traffic patterns change, and they always are, the store needs to change as well.
Customer shopping experience is major for building customer loyalty. This is mostly how customers are treated by staff when shopping. This is the one area where many retailers fail. There are great examples of customer service but they are not the norm. On line, ease of navigation, speed of checkout and access to customer service are key. Many retailers with web sites pay little attention to the customer service that is needed. People have questions and at times returns or exchanges may be needed. How this is handled is key.
Have you noticed the most ridiculous new message you get when calling larger customer support lines? It goes something like this: “Due to heavy call volume, your wait may be longer than normal. Many questions can be answered at our web site.” I don’t know about you but when I hear that message, which I do with increasing frequency, I think …this company has problems.
At The End of The Day, Profit Must Be Made
As a business consultant and coach, I always look to the profit trends and what is the practical near term strategy for strengthening profits. Every business must earn a profit to survive and grow. There is always an opportunity to improve business performance. It requires defining the performance targets then establishing a disciplined process for meeting or exceeding those targets. That process always works when the process is worked.
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About: Steve Pohlit is a CPA,MBA and has been the CFO of several major domestic and international companies. Steve is a business owner and an expert business consultant focused on building profits and net asset value. He is very experienced with Internet marketing and social media marketing. All articles published by Steve unless specifically restricted may be freely published with this resource information.
“The Restaurant Industry suffered Its Worst Quarterly Decline In Customer Traffic In 28 years In the Second Quarter 2009″
I love the retail industry and I consider restaurants part of that overall industry. I recognize restaurants are distinguished in the financial press for reporting purposes. I also recognize that if you are a restaurant then you should be studying how you are doing in comparison to others.
The business of retail is so much fun because there is a tremendous amount of valuable information available and generally with the volume of customer traffic, you can test just about anything and receive feedback quickly as to whether it is working or not. In retail the most energy should be devoted to marketing and in all fairness it usually is. No whether that marketing is effective or not is a topic of debate. My view is that it isn’t and the view of the people dong it is that it is.
That brings us back to the overall results reported for the Second Quarter of 2009. I wrote that the decline is written in a headline like it is a surprise. Many may be thinking my view was based on the state of the economy with unemployment still running high and consumer confidence still running low. But actually my view is based on dismal failure of restaurants to pay close attention to the details of what is important to customers.
To support my view, I look at the exceptions. Here is one reported on by Fare Magazine. That exception is Panera Bread. They have not cut prices, they have not gone promotional and the company continues to grow profitably. Click Here for the complete article.
There is always value in studying what is working for others and, for that matter what isn’t. Look within your industry and outside of your industry. I forget what bank was the first, but I remember the story of a bank president looking at the success of drive thru windows in the fast food industry. He tried in banking and it rapidly became very successful.
In any economy there are always companies that do well and those that fail. The ones that do well are those who consistently pay attention to the details important to their customers. This is the value exchange principle. The more value I give you the more you are willing to pay for it.
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About: Steve Pohlit is a CPA,MBA and has been the CFO of several major domestic and international companies. Steve is business owner and an expert business consultant, direct response and social media marketing and social networking security expert . Steve is focused on helping companies improve their business performance. All articles published by Steve unless specifically restricted may be freely published with this resource information.
Another article today in the Wall Street Journal and I am sure there are many other headlines as well about the state of the retail industry right now with retail companies dumping inventory at deep discount pricing, concerns about liquidity and credit not being available for doing deals (mergers and acquisitions)
I am not denying the specific examples cited in these stories. Circuit City is real, Pilgrim’s Pride is real and I am sure there are other bankruptcy filings today in the private sector. The real issues is leadership mindset.
I published the following comment in the Wall Street Journal today in response to an article “Retail Faces A Long Season of Stress” My response is relevant for all companies and entrepreneurs regardless of the industry:
Many companies have developed their culture to focus on building a positive value added relationship with their customers and prospective customers. These businesses will feel much less of an impact of a global economic softening than others. Some will thrive. The operative phrase is cultural change.
Regarding credit markets and consolidation in the industry, credit constraints are real. However, it is also true there is capital available and if a deal makes strategic sense, it can get done.
Our most immediate challenge is mindset. We are tested in our ability to look for opportunities and solutions when media focuses on every possible negative story. Those who succeed with a consistent mindset that they can move forward successfully, will do so.
There are countless examples throughout history, including the depression era, of people moving forward and not being stuck. Mindset is a choice for each of us and is not a result of external events.
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Steve is the President of International Business Consulting Resources. His firm specializes in guiding companies to rapid increases in revenue and profits with a sustainable growth rate. Don’t miss my FREE Report: How To Make More Money With Your Business Now and Long Term I am building my practice and welcome new client inquiries. Call me for a fee consultation at 727-587-7871
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Click Here for the details of this story: In summary, at first glance it appears the company’s success is do to ……let the President Steve Matyas tell it: “It sounds like a cliché, but everything we do is about making shopping easy for our customers. We continually ask ourselves and our customers, ‘What can we do to make shopping with us easy?’”
Specifically what are they doing better than their competition and pay very close attention to this as there are very valuable lessons to be learned:
1. Clearly defined niche – small business owner.
2. Establish a process for staying in touch with their customers and then offering the products and services they want and need. Have you heard the message: find an hungry market already spending money on what you are offering then position your offer better than your competitors?
3. Make is easy for your customers to do business with you. In the article you will notice there are different size store models depending on the market. Staples cannot profitably operate the same store format in all markets because of demographic differences.
4. After following the first three steps they are able to reap the rewards of their focus on “making shopping with us easy” and they know how important it is to have the right employees in their stores to execute on this goal. Notice their emphasis on innovative recruiting to attract people they need for their growing business.
This is a great example and lesson of a business understanding and serving their customer.
Sending all my readers the energy of vibrant health, happiness and prosperity.
Steve is the President of International Business Consulting Resources. His firm specializes in guiding companies to rapid increases in revenue and profits with a sustainable growth rate. Don’t miss my FREE Report: How To Make More Money With Your Business Now and Long Term I am building my practice and welcome new client inquiries. Call me for a fee consultation at 727-587-7871 Remember many of my business building articles can be found at Steve Reports and my prosperity building tool (best tool ever for helping you manifest your goals and dreams) is The Prosperity Tool Chest and guiding articles posted very often at Prosperity Tip