"I do not think there is any other quality so essential to success of any kind as the quality of perseverance. It overcomes almost everything, even nature."
-- John D. Rockefeller

by Jami Petersen

If you haven't yet, plan now for your "After Holiday" sale. As you learn this week about margins in the Business SMART article, you might see that there are some products in your store that need to be moved out or discounted. By reducing your margin on these products, you can make room for new products that will have a better turn rate. It isn't too late to choose success in 2009.

Jami Petersen
newsletters@a-z.com

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by Dennis A. Conforto, A-Z Media Group, Inc.

We are reviewing the major items that drive profits. Last week we talked about turns as the top profit driver; following close behind are margins.

Margin management defines retail. Many scrapbooking retailers today are what I would call “formula retailers” – they manage their margins with a markup formula. Some will take the cost of just about every product in their store and mark it up with a formula like 2.2 times the cost of goods equals the retail price point.

Many retailers use this method because it is the least labor-intensive way to set price points; it also requires less thought. But formula pricing does not allow you to compete with retailers who set price points based on the consumer’s perceived value.

Many retailers fool themselves into thinking that they set the price point; however, the consumer always drives price points. Savvy retailers know that if a product is not selling well you mark it down until it does: at some point, the consumers who didn’t see the value in the product based on its original price point now do.

A Look at Another Industry
Take, for example, Albertsons, one of the world’s largest grocery chains. In the grocery business, the average margins are about 5%. In spite of this, their stores have prime locations, great advertising, highly trained staff, and great displays.

Competition is fierce for price points, locations, advertising, staff and the effectiveness of their displays. To make it work, they have to turn their inventory in some areas eight (8) times per year; and, in other categories, they have to turn daily, meaning 365 times per year.

In addition, they are now diversifying and broadening their assortment of products and services, something I call “Scrabble Merchandising”. For example, they now have banks and drug stores inside the store. They rent videos, develop film, and in the summer sell patio furniture.

Stores like Albertson’s are expanding their product lines to increase margins. Every item has to stand on its own. The consumers still drive the price points of the items, but consumers allow for higher margins on patio furniture, for example, than for a loaf of bread or a gallon of milk. What the retailers do control is what they buy, how much of it, and how often. By retailers matching the operation performance of their business to the price points the consumers set, profits and growth emerge.

Some retailers see Wal-Mart as the “evil empire” of retailing, but we have to recognize that they simply did a better job than any other retailer in driving consumers to buy their products. Wal-Mart organized their business around price points that consumers will pay.

A Look at the Scrapbooking Industry
In the scrapbook industry the average retail margins for an independent store are in the high 40%’s to the low 50%’s. They need those margins because of the low turn rate. Despite the solid margins, the turn is so low that scrapbooking stores are failing left and right. Many scrapbooking retailers are shocked by their failure. They don’t understand how their business is harder to come by and their losses are mounting while they are improving their skills as businesspeople.

A leading contributor to store failure is when the retailer refuses to lower the price on items that are truly dead. Over time, the percentage of the store’s dead inventory climbs until the entire store is dead. The retailer fails to listen when the consumer says, “I will not pay this much for this item”. In price wars, the consumer will always win. The fact is, when the store is having its going out of business sale the consumer will get the product for even less than they thought.

Price points of your products ought to be fluid and always moving. The market changes fast and your pricing needs to move with it. Independents try not to compete head to head with the large box retailers within their marketplace. These big box retailers have listened to the consumer’s perceived value and have lowered their pricing. Pricing is perception of value, not value itself. SMART independent retailers should choose 40 items that are positioned to compete with their market’s strongest competitor. SMART retailers will mark them below the price of your competitor and state it clearly in signage that “their price on this day was “x” and our price is lower everyday”.

This is where real retailing comes in because there is nothing wrong with having higher margins than everyone else. As long as the consumers believe you are the lowest price, you win. Wal-Mart is seen by millions as the lowest price, they even claim “Always the Lowest Price,” but are they? No. Do they win the perception battle of always being the lowest price? Yes. Why? Because retail is the art of managing the perception of the consumer. Never ever confuse perception and reality.

Why Manage Margins?
Margin management takes a lot of work for retailers and manufacturers; it is, nonetheless, the essence of a profitable business. There are 5 reasons why a business that engages in margin management leads to a healthier and better business.

1. You know what is selling and at what price point, then you keep it in stock; this boosts sales in an ever upward spiral trend.
2. You know what is not selling and adjust the price point until it does or get rid of it fast; this keeps most of the inventory fresh and new, which the consumer requires of any retail store or manufacturer.
3. You sell the right products from the best vendors at competitive price points.
4. When you turn inventory faster to meet the consumer price point expectations, you have positive cash flow and real operating profits to show for all your hard work.
5. And when you turn your inventory faster you have lower operating cost and you can therefore compete with anyone large or small in your market area.

In summary, margin management means higher sales, better margins, higher cash flow, higher profits, lower operating cost and a more loyal consumer who believes you provide the best value… and that is what SMART business is all about.  

If you would like to comment directly to Dennis about this article or have him address a subject matter in future articles feel free to email him directly at dconforto@a-z.com.

PSRO 

Dedicated to those helping consumers preserve treasured memories.

The Professional Scrapbook Retailers Organization™ (PSRO™) bridges together retailers and suppliers for insight into the memories market.

Through educational programs, business services, industry research, networking, and events, PSRO leads its members to discover, understand, and act on new business opportunities.

For more information, or to join PSRO, visit www.psro.org or contact our member service department at 517-788-8100.

Spellbinders Paper Arts is looking for a few good designers!

Spellbinders Paper Arts has issued a nationwide Open Call for talented paper crafters, scrapbookers, card makers, rubber stamping and altered artists to join the 2009-2010 Spellbinders Design Team.
 

“Our 2008-2009 Design Team is fabulous,” notes Spellbinders co-founder Stacey Caron. “Over the past year they have created incredible projects – from quick and simple to exquisitely detailed – using the full range of Spellbinders products. They are wonderful, supremely talented women who have helped to create an incredibly loyal and inspirational following for Spellbinders. I’m excited to open the door to a wonderful NEW group of paper craft artists and can’t wait to see where their creativity will take us.”

The application deadline is February 1, 2009 and the selected Design Team members will be notified by February 25, 2009. Full details about the contest, including eligibility and submission requirements, requirements for tenure during the full design year (May 1, 2009 – April 30, 2010), and the Prizes for all selected Design Team Members are available at http://www.SpellbindersPaperArts.com.
Use of Spellbinders product is not required for the application projects. Questions specific to the Design Team Contest can be sent to desginteam@spellbinders.us.

About Spellbinders
Spellbinders Paper Arts entered the craft and hobby market in 2003 with the introduction of the Wizard® Universal Craft Tool and a unique, patented collection of dies unlike any introduced before - or since. Spellbinders Paper Arts manufactures, markets and sells the Wizard, and an unparalleled collection of patented and patent-pending products under the following trade names: Nestabilities™ - nested dies offering cutting and embossing capability in ¼" and 1/8" increments; Edgeabilities™ - window and charm cutting dies; Shapeabilities™ - the first free-formed shape dies, offering the ability to cut or emboss in the center of cards and in any orientation; Megabilities™ - extra large dies; Poseabilities™ - offering poseable dies; and Spirellabilities™ - spiral wrapping dies. In 2008, the Spellbinders family of dies expanded to include Pierceabilities™ - dies and coordinated templates for paper piercing; Borderabilities™ Petite – 5 ½" card making dies featuring one-cut edges and elegant embossing detail; Borderabilities™ Grand – 12" scrapbooking dies to create full-page borders; and Shapeabilities™ Nested Sets – incrementally sized shaped dies.