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Retail SMART |
Hitting the
Wrong Target! |
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By:
Dennis A. Conforto
Chairman & CEO of A-Z Media Group, Inc. |
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In my series of articles on the retail grind I listed ten items to know when you were no longer in the retail grind. Number three stated that you were out of the retail grind when your pre-tax profit exceeds 10% for 36 consecutive months. It’s harder to make a profit in retail than just about any other business I know of. This is because there are so many variables to retail profitability. The biggest challenge that retailer’s face is that they focus all of their energy on the top line rather than the bottom line. Nothing is greater than to hit the target of your top line. However, if you don’t hit your bottom line goal you are just flat-out hitting the wrong target.
The true goal for any business is to make a profit. When a company loses money, everyone loses. Suppliers, owners, employees, the community and even charity organizations all lose. Making a profit is not a dirty word; in fact making a profit is the only word.
To hit the correct target your eyes must always be focused on your true goal. If you blink, you miss. If your eyes shift, you miss. If you don’t view profits as your primary target, then you will miss the target.
There is a logical reason that retailers in general don’t make enough money: Their primary goal is sales not profits. They reason that if the cash register is singing they don’t have any real worries. Over time, however, history has proven that this kind of thinking is not only flawed, but also deadly to retail profitability.
Retailers must first correct their planning process, which means they must plan from the bottom line up, rather than the typical top line down planning. It all starts with the correct question, which is: "How much money do I want my company to make this year?" Most retailers instead think about how much they want to make in sales this year. The difference in the results of a bottom line thinking retailer and the top line thinking retailer is like night and day.
Bottom line thinking retailers start with the profit goal first and calculate from that the top line. When this occurs, these retailers quickly understand that their top line has to be higher than what they thought it would be. It forces them to see their business in a different way and to ask questions that they would normally never have to ask. This kind of thinking makes retailers smarter because they are forced to be innovative to reach the bottom line goal they have set.
Top line thinking retailers start with the top line goal first and calculate from that to the bottom line. When this occurs, retailers spend time hacking at the budgets to cut costs, rather than trying to be innovative. The truth is, those that think about the bottom line first are better at being low cost providers because they are better at innovation.
Great retailers innovate, good retailers copy, bad retailers don’t have a clue of what to do. If you are a good retailer or an "I don’t have a clue" retailer, I suggest you focus first on hitting the right target - your bottom line. You will find that when you do, you will see more clearly, understand more deeply how to innovate; and you will determine how to grow your business into constant healthy profits. The pressure you feel today will be replaced with an ever-building road map of your future success.
For information on being smart about your roadmap, take a look at the SMART group. Get SMART. Be SMART. Stay SMART.
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