Sales and Margin - The Cornerstone of Business

I continue to be asked about making improvements to business bottom line! Whilst some in business are looking for ‘magic’ answers, my response has always been to look back at business basics and re look at your business plan. I’ve covered these topics before but I never apologise for being too basic or for presenting ideas again! Here’s some ideas that should be included in your thinking:

What’s happening in our industry currently as regards sales trends and margin direction? This is important to consider as these two represent the two main ‘drivers’ behind profit performance. To put things into some sort of perspective, I think we can take it as given that the third ‘driver’, our expenses, have increased so there is already downward pressure on our ‘bottom line’.

Let’s take margin first. Looking outside retail, if we look at the on-premise sectors in hospitality first, we have seen a strengthening or at the very least a maintenance of margin over the last few years. Bar and bistro margins have been assisted by venue improvements and an increased consumer spend on experiential/image or ’fun-times’ type activities i.e. customers aren’t just paying for product but for the experience as well!

However when we consider liquor store and bottle shop margins there’s a different story – competitive pressures, decreased loyalty, an advertising focus on price and a lack of willingness to embrace training options and better ways of doing business have all contributed. The fact remains that when you run a single department business, there is no other income-generating sector to cover losses or reduced profit. When margin is falling at the same time as expenses are increasing, there is required to be a commensurate lift in sales to compensate.

So, are retailers getting that corresponding increase in sales to compensate and how many more sales dollars are required for every percentage point drop in margin?

Well, there is no doubt that many retailers are continuing on with sales growth through aggressive marketing campaigns (that do not necessarily have to be price based!) and staff training programs that give them real gains. Do these campaigns and training programs cost? Of course they do! Speaking of retailer spend, I’m constantly amazed that retailers will spend money on the same old advert style week after week and month after month and yet turn away from staff training as being a waste of money! As the advertising companies have always said;
 

So, if some retailers are getting sales gains, is it happening with everybody? Sadly, the answer is no. So, how is any business placed when it has falling sales, decreasing margins and upward creeping expenses? The answer is, of course, a triple whammy effect on the business bottom line. I’ve done the sums on a number of occasions and a 5% drop in sales with a two percentage points drop in margin and extra expenses to try and catch up can devastate bottom line!

It’s all been doom and gloom so far, however the key to business development lies in building strategies into everyday work in store. Sales boosting strategies and margin boosting need to be considered as everyday actions that are planned, implemented, monitored and revised. It all sounds good, but remember the sales boosting strategies that I discussed in an earlier article:

1. Increasing customer numbers
2. Increasing return visits by customers
3. Increasing average customer sale

Consider what you can do in each of these areas for sales gains. Remember, we don’t just sell alcohol; we sell image, fun, hospitality, good times, relaxation etc.

What about margin boosting? Consider how you go in each of the following five areas:

1. Buying stock
2. Marking up on cost
3. Handling sales mix variation
4. Discounting strategies
5. Shrinkage control.

Improved performance in these key areas will see margin gains. Have I mentioned price increases here? No, that’s a sixth strategy that can work in key areas without affecting turnover but I’d be concentrating on the other five first because they can represent real bottom line gains as sales should not suffer! Over to you.

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