In this economy, nearly all retailers are worried about keeping their stores afloat. Customer counts down? Sales totals? No matter the concern, there are strategies for keeping customers coming back and filling their baskets. It's just a matter of figuring out what's best for you.
"Try a lot of things and keep what works," says Doug Fleener, president and managing partner of Dynamic Experiences Group in Lexington, Mass. But, says Fleener, whose organization consults with independent retailers, make sure you set clear goals for your actions, like increasing sales or attracting new customers, so you can measure your success.
To help navigate stormy economic times, NFM spoke with retail experts who know these tactics inside and out. Here are some retailers' economic concerns, and what you can learn from them.
Cutting back inventory
"During the last few years we got fat, dumb and happy," says James Simons, owner of Tri Valley Health Foods in Casa Grande, Ariz. "We carried a lot of extra inventory. Now we're getting rid of it and only carrying our most profitable items."
A tough economy is a good time to take a hard look at inventory. "I would guess that 20 percent to 30 percent of the shelf space in a natural foods store is not delivering the goods," says John Foraker, CEO of Napa, Calif.-based manufacturer Annie's Homegrown. Foraker encourages retailers to work directly with manufacturers to isolate which brands in a category are working and which aren't—whether they're among that manufacturers' brands or not. "A company like ours knows how our product sells and how other people's products sell."
"In general, retail stores don't demand enough information from the manufacturers about what sells and why," he says. "Put a system in place to rigorously review your categories." And, he says, take advantage of the help your brokers can give you.
"I'm promoting a lot more, doing a lot more three-day sales," says Greg Musch, owner of Fiesta Foods in Harley, Iowa. Musch is using more radio and newspaper advertising to promote his store. "I think it's helped keep the customers coming back."
Musch is on the right track. A McGraw Hill study done in the early 1980s, when the U.S. was experiencing a recession, proved that advertising helped keep sales strong during tough economic times. The study, which tracked business advertising from 1980 to 1985, concluded that retailers who maintained their ad buying throughout the economic downturn saw a 275 percent sales increase in the five years, compared to just 19 percent for those who cut back advertising.
"Direct marketing to your customer base right now is by far the most effective and cost-effective," says Fleener, who recommends electronic newsletters with a value-added appeal to keep costs down and increase their attractiveness.
But, Fleener says, don't just bombard customers with sales and coupons. "It's much better to communicate your expertise, your product collection, your convenience," he says. "Value is much more than just price. It's the overall store experience."
Running more sales
Small and large stores alike are emphasizing discounts and sales in their customer communications. Musch is heavily promoting his website as a resource for customers to download coupons and economical meal solutions.
Although coupons and deals can be an attractive incentive for consumers, Fleener emphasizes that they shouldn't be your only strategy for boosting sales. "Coupon use is way up, but you have to be careful that the customer doesn't come to expect that you're a coupon type of store," he says. "Do it, but do it in moderation."
Dealing with "trade down"
"People just really don't want to pay the extra premium for organic products," says Tri Valley Health Foods' Simons. In addition to a drop in organic sales, Simons has seen a decrease in sales of snack foods and prepared dishes.
Simons' trend is similar to what many other retailers are seeing: consumers buying cheaper items, sometimes trading quality for cost.
To combat this, Corrine Shindelar, CEO of the Minneapolis-based Independent Natural Foods Retailers Association, recommends taking advantage of customers' "price perception," and educating them about the cost per serving of products. Devote a few labor hours to figuring out the price difference between a cup of organic spinach and a cup of conventional, for example.
"Customers will see that it's not that much more expensive to eat organic and natural," she says. This is especially important in the deli, where Shindelar encourages marking foods at half-pound prices instead of full-pound prices. Consumers will be less overwhelmed by the cost of something that will feed four people.
Fleener adds that retailers should ensure that customers who are trading down are not trading out of the store. "Look at your product mix and see if you need to offer a different price point," he says. "Don't be fearful of change. Just don't compromise what you do and who you are."
Looking for liquidity
Without adequate external capital, experts encourage retailers to look for ways to find creative financing. "I'm not saying you should curtail the search for outside capital, but there is significant additional liquidity to be realized through programs that are implemented internally," says Richard Kaye, executive vice president of Hilco Trading, a Northbrook, Ill.-based firm that helps companies find cash flow within their businesses.
For retailers who own their own property, Kaye says, it might be a good idea to look at sale/lease-back arrangements that would allow retailers to extract the capital from owned property, then negotiate a viable lease of the space. "It may not be such a wonderful idea to own real estate today anyway," provided that investment in the property is not part of a retailer's retirement plan, says Kaye.
But retailers who rent their location can save, too. "Now is probably the best time for any retailer to look into their portfolio of leased locations and renegotiate lease terms," says Kaye. Since this economy has made everyone more open to negotiations, it's possible that retailers can save money on a monthly basis.
"Every dollar you reduce in expenses is a dollar of cash you have available to do something else with," Kaye says. "And all of that is like finding additional financing for the business without going to traditional lending sources."
Losing out to bigger competition
"There's a big Safeway here that carries a lot of the stuff that I was supposed to carry," says Yvon van Driessche, owner of Le Barn Health Food Store in Seward, Alaska. "They can outpace me anytime—they just hold a big sale and I will not be able to move it."
In the face of competition, Fleener encourages store owners to think about what makes them stand out as a business. "I would ask myself, ‘What are the five reasons that people do business with us?'" he says. If it's carrying specialty products that the big chains won't sell, make sure those products aren't too upmarket. "It's about looking at your store from a customer's perspective."
Foraker of Annie's Homegrown agrees. "Listen to your customers," he says. "Then you can really tailor your mix to your shopper." He suggests continuing to carry the best-selling items—even if the supermarket down the street already carries them—and emphasizing the certified organic and new products that independent retailers do have an edge on. But, Foraker warns, don't just differentiate yourself by carrying items that the supermarket won't carry, especially if you know they won't sell.
Finally, make sure you're giving people the face time they expect from you. "Customer service is really what differentiates you," adds Shindelar. "This is the place where other big retailers are cutting back," so now is the time to boost the service that customers won't get in retail chains, she says.
Cutting staff hours
Maintaining good customer service is especially important to keep in mind when looking at staff cuts. "Staffing is the easiest and fastest way to cut expenses, but don't underestimate the impact it has on your business," she advises. "Do what you have to do, but know what the cost of it is."
Barbara Farned, owner of Complete Health Store in Rialto, Calif., has already cut staff hours as an alternative to layoffs. "They're each taking a week with no pay, giving up their vacation pay," she says. "Pretty much no bonuses, nothing extra."
In light of trimmed staff and the potential for lower morale, Fleener suggests encouraging staff to participate in conversations about how to move forward. "Bring the team together and ask, ‘How can we work smarter, better?' " he says, emphasizing that the store's operational demands won't decrease even if your staff does. "Be cautious that the operational aspect doesn't so overtake the staff that the sales floor suffers and impacts the customer."
Ultimately, Fleener says, it's about cultivating customer relationships. "There are a lot of people who have to make choices of where they spend their money right now," he says. "As a retailer, I just have to make sure they're going to choose me."