You spend your days helping others achieve optimal health, but what about your store? As the old adage goes, it is always the cobbler’s children that have no shoes. So, with March in full swing, and your vitamin and supplement sales at their annual peak, now is a good time to plan how you will optimize your slower summer months. Here are a few things you can think about to help get your store in good shape—optimal health, if you will.
Your Lease Cost
Although sales for natural and organic products overall have been growing, your store may be under pressure from new—or newly aggressive—competitors. If your sales are holding up, good for you. But if your store has stopped growing, or has experienced a decline, you may wish to consider easing some of the financial pressure by attempting to renegotiate your lease. While landlords and developers don’t enjoy making concessions, the harsh Great Recession created pressure to modify leases, reduce rents, and to be more flexible in general with tenants affected by the downturn. Although the recession is over, the recovery has been slow, with median U.S. household incomes actually declining. Depending on your particular circumstances, you may be in a position to approach your landlord for some consideration.
If your lease is nearing the end of its term, or if you are reaching an option period to extend your lease, this is the best time to open the discussion with your landlord. However, because your profits are under pressure, you can approach at anytime. Be prepared to show your books to document the slow or downward sales trend. While you won’t be able to slash your rent in half, you may be able to achieve a modest reduction in the per-square-foot rate. Failing that, you may be able to reduce or suspend any scheduled annual cost-of-living increases built into your lease, or to hold rent steady for a year or two. At the very least, even if your landlord is completely uncooperative, making him or her aware of the profit pressure you face may temper any future attempts to raise your rental rates.
The Right Product Mix
In our industry’s infancy and adolescence, natural products retailers could offer every category. But today, with eight different channels of retailers grabbing for market share, this is much more difficult to do. As we’ve discussed in earlier columns, your local conventional supermarket probably has more doors of natural and organic dairy and frozen items, and more linear feet of natural meats and poultry than you could fit into your store.They are catching up on the dry grocery categories, as well. The most aggressive supermarkets even have a decent selection of natural personal care, household, and health and beauty aids.
While I am not suggesting you carry only vitamins and supplements, I am encouraging you to take a cold, hard look at your strengths and weaknesses, and make some decisions about which departments you are willing to invest in to be the best in that category. Maybe you are strong in bulk foods. Perhaps you have the most extensive offerings of medicinal and culinary herbs. Or you may have an exclusive arrangement with a local supplier of beef, pork, lamb, poultry or fresh produce.
These areas of product strength differentiate you from your competitors and are your best hope for fending off challenges from competing retail channels. Consider investing more heavily in these product-strength areas by adding displays, equipment and fixtures to properly merchandise these categories. You can create more space for your best categories by reducing the space you allocate to the other, lesser departments. By focusing on a few great categories, you will increase the chances that shoppers will think of you for these items when the need arises. And, by deemphasizing your weaker departments, you will free up resources and time to put your featured offerings in the best light.
Purchasing, Pricing and Promotion
One of the opportunities you will create by narrowing your focus to certain product categories is to increase your buying power. As your volume on a select group of items increases, you may be able to negotiate larger volume discounts. In doing so, you may choose to pass on some of your lower costs to your shoppers in the form of lower prices—a good idea in today’s hypercompetitive, super-transparent environment—while at the same time preserving or even increasing your gross profit margin on these same items.
It is also a good idea to evaluate your promotional programs and activity. A good rule of thumb is, when your vendor is promoting an item, you should promote it as well, since it is likely that your competitors will have the same “national” promotion. Promoting in this way preserves your gross profit percentage while increasing value to your customers.
The one exception to coordinated promotions is the “line drive,” most common in the supplements categories. Since all products within a given brand do not sell at the same rate, you are probably better off promoting only the best sellers in a line. As with your store’s customers, 70–80% of your product sales likely come from just 20–30% of your products. Promote the top 20–30% and leave the bottom 70–80% of your slower SKUs at regular price. While your vendor may not be happy about you holding back certain discounts, doing so will save you money on promoting slow movers that don’t respond well to promotion.
One final word on buying: As you reconfigure your product mix to focus on your strengths, you may create shifts in buying patterns that favor one vendor over another. Also, if you typically “spread around” your purchases of the same products from multiple vendors, you may get a benefit from consolidating those purchases with just one vendor. Rather than be afraid of consolidation, use it to your advantage by telling that vendor that you are promoting them to “primary vendor” status. This will be music to your vendor’s ears. Use your new leverage to ask your new primary vendor to raise your off-invoice volume discount level to reflect your increased buying power, a benefit to your gross profit margin.
Here’s a retailing reality: your competitors are investing hundreds of dollars per square foot over the life cycle of their stores, refreshing fixtures, equipment and leasehold improvements in a six- to 10-year replacement cycle. While we may have been able to escape this reality in our industry’s youth, today, natural products retail stores are just one more choice on the menu of options shoppers have.
And, there’s a very good reason food retailers bite the bullet and invest to make a “good” presentation “great”: shoppers respond by shopping more frequently and spending more money when they do.
Ponying up for a new refrigerator, freezer or gondola shelving isn’t cheap, and may not easily come out of your cash flow. You may have to use a line of credit or borrow to accomplish this, but that is why your competitors build in a formal “replacement cycle” fund at the outset. They plan to reinvest over time in order to keep their stores looking fresh and attractive.
If your sales are flat or down and you haven’t kept your presentation up, hop in your car and take a tour around your trade area to view your competitors’ stores. You may find at least part of the answer to your struggles is because of the superior presentations of your competitors.
Recently, the legacy department store chain, Sears, conducted an employee survey. What they found isn’t rocket science. Stores with happier employees have higher sales.
What makes employees happy? Knowing what to do. This may sound simple and obvious, but not knowing what the clear work goals are is the number one employee complaint. What’s the second most common employee complaint? Not having the tools to do the assigned work. Again, sounds simple. But actually providing the right tools at the right time and place is a skill and an art that requires management to forecast and predict needs, and to actually care about the employees’ environment.
For example, a clean bathroom can go a long way toward good morale. The same is true for a dedicated, if small, break area. Having enough spare rolls of register tape handy, fixing the broken wheel on the mop bucket, or providing an insulated jacket for restocking the walk-in freezer. All of these details require an attentive management, and are painfully obvious to every employee when absent.
Who Do You Think You Are?
And, do your employees and customers agree? Are you the most convenient store? Do you offer the best selection of bulk herbs? Do you have the best parking? Quick in-and-out? The freshest product? The most new items? The friendliest staff?
Take the time to figure out your strengths. Invite your employees and customers to tell you what they love about your store. (By the way, don’t ask them what they don’t like. If there’s a real problem, they’ll tell you, and if you ask, you’ll make them feel stupid for shopping with or working for you.)
Once you figure out your strengths, repeat that message constantly, consistently, everywhere; at your registers, on your signage, in your advertising. With that, you should be ready for a great 2015! WF
See www.wholefoodsmagazine.com/columns/merchandising-insights for additional Merchandising Insights columns.
Jay Jacobowitz is president and founder of Retail Insights®, a professional consulting service for natural products retailers established in 1998, and creator of Natural Insights for Well Being®, a comprehensive marketing service designed especially for independent natural products retailers. With 38 years of wholesale and retail industry experience, Jay has assisted in developing over 1,000 successful natural products retail stores in the U.S. and abroad. Jay is a popular author, educator, and speaker, and is the merchandising editor of WholeFoods Magazine, for which he writes Merchandising Insights and Tip of the Month. Jay also serves the Natural Products Association in several capacities. In 2014, Jay received the Natural Products Association’s Industry Champion Award for notable contributions to the industry above and beyond commercial success. He can be reached at (800)328-0855 or via e-mail at firstname.lastname@example.org.
Published in WholeFoods Magazine, March 2015