I often challenge other's assumptions about business -- so it seems especially important to me that I regularly challenge my OWN assumptions.
Seems to me, sometimes, that half the battle of surviving in business is figuring out which 'common wisdoms' are correct and which are wrong, -- and why.
I can come up with several misconceptions off the top of my head.
1.) One must blow out slower selling product.
I mentioned this yesterday. For a specialty long-tail store, this may be counterproductive.
2.) Lower prices mean higher sales.
They may, but they certainly don't mean higher profits.
3.) Advertising is always necessary.
I wish I could figure out which advertising is effective and which isn't, but because I can't I don't do any at all.
I also have a number of misconceptions about my business, in particular.
1.) I'm a kids store.
2.) Superhero movies must help me sell superhero comics.
3.) Downtown promotional events are good for business.
And so on.
So I try to listen to others, as much as I can, to hear where I might be wrong. Or where circumstances might have changed.
It's useful for me for HBM to remind me that SCALE is "always" a retail problem, not just in Bend. (Though I still think Bend has it worse...)
Or the customer yesterday who pointed out the Big Box phenomenon in Bend wasn't just Bend, that it developed over the last twenty years everywhere else, too. (Though I still think Bend has it worse....)
I noticed over the last week or so, that my 'buy-dar' has been slightly off.
I always think I can tell who is going to spend money and who isn't. There are bunch of signals, from what people say, how they act, even body language. I swear I can even tell by the way the front door opens, if it's a regular or a visitor.
But I'm backing down off my -- young families and kids don't spend money in my store -- stance. They don't spend anywhere near as much as most people think, but....they do spend a bit, especially if I keep my mouth shut and the scowl off my face.
Secondly, though the downtown street closures aren't exactly my favorite thing, they seem to have stopped actually hurting me. Probably because I've become much more mainstream in my product over the last ten years. (Though I still doubt street closures create as much future business as most other business owners seem to think.)
So, hey. I'm willing to admit when I'm slightly wrong. Though I'm not willing to admit I could be completely wrong.
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6 comments:
"I wish I could figure out which advertising is effective and which isn't, but because I don't do any at all."
Maybe, but you are probably paying a fairly high rent to be on a high-foot-traffic downtown street.
Your 'advertising budget' goes towards your rent payment -- paying a premium rent to be in a popular location.
The best way that I have found to measure the health of a business is by looking at its gross and net margins.
It is also why my first rule of business is:
1. Defend the margin.
Which goes along with your observation about increased sales not meaning increased profits. One might temporarily give up margin to gain market share, provided you have a plan to recover margin at some point. A shrinking margin is usually a flashing sign indicating impending failure.
Jeff,
Absolutely. Good point. And it was part of my thinking, as well as for the BookMark.
RDC,
I've resisted the temptation to lower my prices. I have a unique store, packed to the brim, and I'm not giving that up chasing the customer.
So far, it's working.
The other thing I'm doing, which is only possible because I am fully stocked, it buying lots of product as discount prices.
I ordered so much 'sale' product last week, that even combined with my regular margin product this week, the overall margin is still 20% better than average.
Goes a long way toward keeping my profits up.
"A shrinking margin is usually a flashing sign indicating impending failure."
Early on, I heard the same thing in reverse. 'The healthier a store, the more they can charge.'
You never really get healthy if you constantly discount everything -- if you're a mom and pop.
"Lower prices mean higher sales. They may, but they certainly don't mean higher profits."
Hence the saying: "We lose money on every sale, but we make up for it in volume."
Best way to go broke fast, whether in restaurants or in retail, is to sell a lot of stuff at prices that are too low.
The thing I always like to point out is, that at a 40% margin, if you discount 10%, you lose 25% of gross profit; at 20% you lose 50% of gross margin, and so on.
20% off is nothing these days. Certainly not enough to double your sales, which is what you would need to do to make the same amount of gross margin.
The other thing that took me years to realize is, to replace sold product -- and a store does need
good inventory, after all -- you have to sell the same item 4 or 5 times to get the original gross profit and still have the item in stock.
Any further margin shrinkage and you have to sell it even more!!
I'd rather have a full store at full price, than a sparse store at lower price....
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