"Careful planning helps us maintain a sense of perspective, purpose and ordered priorities."
-- Stephen Covey, Author and Speaker

by Jami Petersen

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 2010.

Jami Petersen
newsletters@a-z.com

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The Memory Tradeshow

The Memory Tradeshow is the premiere market for scrapbooking and related products, family history and digital imaging.

It is the most important gathering of this industry regionally, and it’s attracting executives from all sectors: manufacturers, retailers, distributors, suppliers, sales reps, designers and press. The show’s goal is to provide the highest ROI show within the industry with a greater focus on the business of the memory industry, education and best business practices.

Learn more and save >>

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.

Serif (Europe) Ltd, the UK’s leading independent design, publishing and creative software developer, is delighted to announce its partnership with global crafts supplier American Crafts, which will see fifty of its premium designed kits featured on DaisyTrail.com in the summer. American Crafts has transformed a selection of its popular physical products into downloadable digikits ready for the launch in July.

DaisyTrail is the dedicated online community for scrapbooking fans, ranks among the top scrapbooking websites in the world, and is used alongside Serif’s award-winning software, Digital Scrapbook Artist 2. The online shop hosts a vast range of digital kits which are full of high-resolution themed embellishments, materials, background papers and lots more.

Gary Bates, Managing Director at Serif, says he’s absolutely thrilled to feature American Crafts on DaisyTrail. “Their high-quality designs will offer even more choice and variety in the DaisyTrail shop. We’re really looking forward to seeing the reaction to the kits and are confident DaisyTrail fans won’t be disappointed.”

Jeff Mitchell, President at American Crafts, says he’s equally excited to offer his company’s fresh and stylish designs to digital scrapbookers. “Serif makes powerful software that’s really easy to use,” said Mitchell. “When we saw it, we were immediately interested in partnering with them. We hope DaisyTrail followers will enjoy what American Crafts has to offer.”

About DaisyTrail
Coinciding with the release of Digital Scrapbook Artist in October 2008, Serif unveiled DaisyTrail®, the online social scrapbooking network for scrapbookers and crafters to share their designs with family and friends, and to exchange creative tips with others. Thousands of users have uploaded their scrapbook designs created in Digital Scrapbook Artist and other digital scrapbooking software. Digital Scrapbook Artist 2 was released in January 2010 with new features such as Stencils, Blend Modes and the PhotoLab. The second version continues to make advanced digital scrapbooking easy and accessible for everyone, with unparalleled value for money.

About Serif
Serif (serif.com) is the publisher of the award-winning software range that includes PagePlus®, PhotoPlus®, DrawPlus®, WebPlus®, AlbumPlus™, MoviePlus®, PanoramaPlus™ and Digital Scrapbook Artist® and more. Founded in 1987 with the aim to develop low-cost alternatives to high-end publishing and graphics packages, Serif has been repeatedly praised for its powerful yet easy-to-use software which has put professional effects and demanding publishing tasks within the reach of ordinary PC users around the world. Now with over 6.5 million customers worldwide, Serif has over 230 employees at its head office, development and European sales centre in Nottingham, UK and its North American sales operation in New Hampshire, US.

About American Crafts
With an ever-expanding range of crafting supplies, American Crafts has created fresh and stylish products since the early 1990s. In addition to digikits available via Serif’s DaisyTrail scrapbooking network, American Crafts offers a complete range of physical scrapbooking and cardmaking products. These products include Thickers™, AC Cardstock™, This To That Adhesives™, patterned paper, albums, unique pens and markers, premium ribbon, Remarks™ stickers, Minimarks™ rub-on transfers and other embellishments that always rank as customers' favorites.