Recession-Proof Strategies for Retail Store Owners
Economic slowdowns are painful for most businesses. Customers cut back on their spending and focus on buying just the necessities. Retail stores take a big hit, with lower sales, reduced profits , less customers, and cash flow difficulties. So what can a retail store owner do to not only survive but make a profit during an economic slowdown? Before looking at what steps to take, it's helpful to go over the top reasons retail stores fail. Retail stores go out of business due to the following reasons:
- Running out of cash to pay the bills
- Too much inventory or having inventory no longer in demand
- Margins that are too low to cover operating costs
- Expenses being too high or out of control
- Not enough store traffic/customers
- Not converting enough store traffic into sales
In an economic slowdown, retail owners must first understand what steps they can take to shore up any weaknesses in their businesses and then immediately take the necessary steps to put their business in the best position to weather the downturn. Let's now discuss what steps you can take to recession-proof your retail business:
Pay close attention to what your customers are buying...
Are they buying mostly on price, or are they buying quality items? Based on your findings, you may need to adjust your merchandise mix so that you do not stock too much of what is not selling. Having too much slow selling inventory will tie up your cash.
Pare down your inventory...
Cut your existing inventory levels to free up cash. Stock primarily your best selling items.
Keep your inventory levels low...
You want to avoid tying up your cash on items that may or may not sell. Consider placing inventory orders more frequently (but in smaller amounts), even if you have to pay higher shipping costs so that you are not stuck with items that are not selling.
Clear out your slow sellers...
Put any slow moving or "dead" inventory on sale and clear it out as soon as possible, even if you have to sell it for less than what you paid. Cash flow is vital during slower times. Having more cash on hand is more valuable then having this inventory on the floor or in the back room. Plus, customers are looking for bargains to stretch their money further and will respond to your closeout sale.
Buy better...
Ask for any available discounts when buying merchandise from the manufacturer or wholesaler. Keep in mind that they likely have deals available due to the slower economy and are in need of moving merchandise, just like you. See if any cash, seasonal, volume, or early ordering discounts are available. Be sure to ask for free or reduced shipping costs.
Lower your shipping costs...
Ask manufacturers and wholesalers about ways you can save on shipping. Receiving your inventory shipments a few days later than usual may save you money on your shipping costs.
Keep your marketing budget constant...
The surest way to kill your retail store is to slash your marketing and advertising investments. Marketing and advertising are not cost centers. They drive your store traffic and are essential to your store's survival. Many short sighted retailers view marketing as a cost to cut and scale back in this area during slower economic times. The good news is that your marketing will pack more impact as your store's marketing becomes more visible due to less clutter.
Devote more time to marketing and customer acquisition...
Don't leave this area to chance. If you are not getting enough customers, devote more time to driving store traffic. This is one of the highest leverage tasks you can involve yourself in. Keep in mind P.T. Barnum's quote: "Without promotion, something terrible happens: NOTHING!"
Only engage in marketing and advertising that you can measure:
Image advertising and non-targeted marketing needs to be eliminated. If you can't measure its immediate effectiveness, don't do it. Your cash flow position is too important to spend money on ads and marketing that don't show quantifiable results.
Explore low-cost marketing strategies...
Learn and understand low-cost marketing strategies that work for independent retailers. One very effective way to drive customer traffic is to partner with other non-competing businesses that sell to your same target market and send endorsed mailings to the customer lists of each business. You can reach known buyers this way for the cost of a letter and postage.
Focus on converting store traffic into sales...
Every customer opportunity counts. You must work each customer opportunity fully in order to get them to buy. Customer traffic is more valuable during slower times and need to be treated as such. Instruct your staff to spend more time identifying customer needs and recommended products to fill these needs. Give your staff the tools to close more sales by working with them on selling strategies.
Don't run continual sales or ongoing discounts...
When money is tight, customers respond to sales and discounts. Retail owners need to be careful not to get caught in the trap of continuing to run permanent sales or offering ongoing discounts across the board. Doing so will depress store margins and result in less money to cover your expenses. Sales need to be used strategically in order to insure that your business is profitable.
Don't cut your prices...
Once you cut prices, you will have a hard time raising them without upsetting your core customers. Instead, offer on occasion discounts and coupons for dollars off. Coupons can be an effective way to offer discounts, as consumers put more value on them when money is tight.
Bundle similar products...
Package products that go together, such as a bicycle with helmet, lights, and bike rack into a package price were the customer can see the savings over purchasing them separately, giving them a great deal. This allows you to make more total profit on the sale (even though your overall margin is lower) than if the customer only bought one of these items.