5 Common Mistakes New Retailers Make
Opening a retail store is the dream of many retail workers. A brick and mortar store is still a viable way to begin your retail business. But we have all seen beautiful stores that open and then close too quickly. Here are 5 common areas where retailers misstep and what can be done to avoid them:
1. Pricing. Set your prices too high and your customers won’t return. Too low and you’ll drive plenty of traffic – enough to put you out of business. To stay competitive, you need to take a three pronged approach as a new retailer:
- Drive a marketing message that gives customers a reason to buy NOW at full price. Plan different campaigns and track which ones are successful. Learn quickly and drop what doesn’t work. Do not hang onto campaigns you personally like but your customers do not react to.
- Create bundles and value packages that are difficult to compare directly with other retailers. If you cannot source unique items (say, from local artists or new companies) create bundles, offer classes free with purchase, provide personal shoppers, etc.
- Create a mix of products that include directly comparable items (key items that you will always competitively price) and profitable items that surround the key items. Your key item pricing will have a halo effect to the surrounding SKU’s. Just be sure to train your staff to sell a mix of both items when servicing customers.
2. Account for true Cost of Goods Sold. In setting your pricing be sure to account for all the hidden charges in the costs of goods sold. Shrink, transportation, damages, unsaleable goods and returns eat into your profits. Take the time to track and account for these costs in your COGS when setting prices. Monitor your charges every week and put plans into place to take action whenever you see a rise in costs. It is important to have a system to identify the source of the rising costs so you can make immediate adjustments.
Always take into account credit card transaction fees and other banking fees when calculating true costs. Consider offering customers a cash discount for those paying in cash to drive down costs and give your customers a value. It is a win/win for you and those customers who take advantage of your offer.
3. Create Budget Controls. If you don’t have a budget and a timely way to monitor your spending against your budget, you can quickly spend all your profits. Marketing, visual merchandising, signs, training programs for staff, charitable write offs – even office supplies and utilities – are all good and necessary things. But you need to plan for how much you can spend – AS A PERCENT OF SALES – and make adjustments throughout the year. Setting a budget that is a percent of sales instead of a dollar value can help you adjust to sales fluctuations and trends throughout the year.
4. Must-have infrastructure. There are areas where you cannot skimp. Shopping bags and stickers – yes. A competent CPA – no. Set a budget that allows you to have access to the best CPA, lawyer, insurance agent and realtor you can afford. Then lean on them for advice and assistance to keep your store a success.
5. Taxes. You need to know how tax issues will affect you and how to make the best decisions. Go beyond income tax, sales tax and payroll tax issues and get yourself educated on sales and use tax (trust me on this – I learned the hard way.) Spend time with a good accountant who can help you time your expenses to be most beneficial to your year end tax liability. Finally, be sure to take the total cost of taxes into your COGS as well as your payroll decisions.
The retailers who stay in business for decades are the ones who bridge the span from “good merchant” to “good business person.” Anyone can buy and sell. Only the smart can succeed in retail.