What are the most common mistakes retail store owners make in the home furnishings industry? Joe Capillo takes a close look at each, and explains how the enlightened manager can avoid certain disaster.
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The five most common management mistakes made by furniture retailers and how to avoid them.
Few subjects have more potential for controversy than creating a list of managerial blunders. To say that anyone can actually anticipate these problems, let alone explain how to avoid them, may seem like the height of egotism. Yet, I can unhappily report that, as a participant in most of the mistakes listed, I wish someone had pointed them out many years ago.
The information presented in this article is based on the input of people who deal with these issues every day. Their job is to help retailers to develop solutions and strategies that lessen the affects of common management mistakes on their lives and their businesses. Hopefully this information will stimulate your thinking about how to improve your operation in these uncertain times.
Why five mistakes? Why not ten or twelve or fifty? These are the top five, but our developing list will provide ample information for later articles. These are not listed in any order of importance. They are presented in order of most common occurrence.
5th Most Common Mistake: No Merchandise Plan or Strategy
Many retailers buy what they like, without much help from consumer research or financial/ system restrictions. Without a merchandise plan, it is very difficult to properly deal with vendors, establish coherent merchandise assortments, effectively deal with the science of merchandising or efficiently manage inventories.
Too many retailers view merchandising as buying, and buying as an art. Perhaps buying is an art, but without a solid understanding of the financial effects of your buying decisions, you will be open to many surprises and disappointments.
Merchandising without a plan is like taking a trip without a destination. As Yogi Berra is credited with saying: "If you don’t know where you’re going, you’ll end up somewhere else." Somewhere else is often where retailers find themselves when they take the time to evaluate their business situation.
The most common problems are:
These two problems lead to a few more issues such as:
Not enough stock of best sellers.
Best sellers being sold off the floor.
No money for buying more of the right stock.
No effective way to know what the right stock is.
These main problems and issues negatively affect business performance in subtle ways that are usually not obvious when they occur. Filling an angry customer’s order with your best selling floor sample solves today’s problem, but causes new ones that you probably won’t see because you never see lost sales. You just fail to make them. You may see that sales are down for some specific period, but I’ll bet you won’t look at your decision to let a best selling floor sample go, as a major contributing factor. Of course, you don’t make this kind of decision just once either, so the cumulative affect can be significant.
4th Most Common Mistake: No Commitment to Training
There is usually a line item on the income statement for trash removal. Seldom is there one for training. Usually, dollars get applied to the training line because the bookkeeper encounters an expense that doesn’t fit anywhere else, and training is performed only when a new hire has to learn how to achieve basic job skills. Such training is often not completed before the trainee has to be "thrown into the fray" to get work done. The subsequent quality of that work can only be considered questionable.
Job descriptions provide an outline of the skills a person must be able to perform. These seldom exist in home furnishings stores (or are hopelessly outdated) and basic training outlines are rarely present.
Lack of training and a thorough understanding of how each job fits into the organization is a major cause of personnel turnover, employee and customer dissatisfaction and low company morale. Poor or no training leaves people open to unfair criticism during performance reviews and allows no way for them to improve beyond the old "try harder". People seek structure and opportunity. Training is one of the pathways you are obliged to provide for them as a business owner.
Job descriptions and documented processes are the first step you can take toward building an internal training program.
3rd Most Common Mistake: Not Measuring Anything
Most companies measure results. Big numbers; overall measures such as gross sales, income statement gross margin for all products, total expenses, net profits and total inventory. Most retail furniture stores don’t measure small things – the right things – that make up bigger measures of performance. These numbers can actually be improved.
The sales equation in a furniture store has three parts: traffic, close rate and average sale. That’s it! Yet, furniture retailers hardly ever measure these three elements by salesperson. At the level of the salesperson is where "performance" happens. And without these numbers, store managers cannot act to improve performance.
Likewise, many retailers measure GMROI, but few use that information to improve gross margin performance or inventory turn rates. These are the only two factors in the GMROI equation that can be improved.
There is an old statement that rings true relative to this issue: "You can’t change what you don’t measure". Seeking performance improvements without constantly measuring all key performance factors at the lowest level of detail is the same as practicing management by wishful thinking. Measuring the wrong things or not measuring at all causes you to be managing the wrong things. In the absence of detailed performance measurements, you and your managers are totally reactive, managing what happens instead of making things happen.
Another pervasive problem is an industry wide lack of current financial statements to guide both long and short-term decisions. One of the most destructive ideas retailers have is that performance can be benchmarked against some published "industry standard". This idea is patently absurd and can get you into a lot of trouble. You should want to look at benchmark expense ratios and actual values compiled from stores just like you. The question is... who is just like you?
Data on the type of store used to calculate benchmarks, as well as the geography, demographics, cost to sales ratio, store size, real estate structure and dozens of other factors must be known if an informed decision regarding the usefulness of such figures can be made. Getting your hands on this kind of information is difficult at best.
In the absence of good benchmarks, you can look closely at your population of performers (both people and products) to determine the overall range of performance within your own store. Calculate the averages and look carefully at those people or products performing below average to determine whether they are adding enough value to your bottom line and your customers.
2nd Most Common Mistake: Being Held Hostage by Salespeople
There was a close race between the first and second most mistakes in this list, but this (second) mistake is an all-time favorite! Nicknamed the "terror of the top performers" this mistake, more than any other sales related issue, hurts retailers at all business levels.
Owners don’t believe they can live without their top performer. Isn’t this the person that got you where you are? How can you take any action that will hurt him or her? How could this person be replaced?
If these questions resonate with you, it is an indication of how deeply your business decisions may be held hostage to top performers. That is why it is critical for you, your business and your future to resolve any resistance to making effective business decisions.
One reason that retail managers fail to see the danger signs (see Mistake # 3) is that they are either not measuring performance correctly or measuring the wrong things (see "Sales Performance Accountability" 7/98 and "Sales Measurement" 8/95 FURNITURE WORLD, posted to the Sales Management Index on furninfo.com). Every store should be collecting comparative data on every salesperson based entirely on how they care for customer assets. Your marketing efforts probably provide them with most of their traffic, and you need to measure how much return you get. You should be looking, among other things, at the range of performance in each of the three critical measurement areas. That way you can determine who is really the most effective salesperson, that is, who is returning the most per customer. You need to do this to clearly see the true effect that your top performers are having on your overall staff performance.
The most significant effect of "hostage-taking" can be seen in store staffing levels. Most owner’s share a common misconception that adding more salespeople somehow hurts existing people. Of course there is a limit to how many salespeople can be added, but in practice stores rarely if ever reach that point. Most stores are grossly under-staffed (see FURNITURE WORLD articles "Big Sales Help Shortage" 2/00 & 4/00 and "Sales Floor Staffing" 9/95 posted to furninfo.com in the Sales Management Index). The result is that they cannot properly service their existing traffic -- particularly on weekends. The number of customers to be serviced, is the only measure (combined with the level of service you want to provide to customers), that should determine how many salespeople you need.
There is no "pie" to be cut up into slices for each salesperson. The size of the "pie" is determined by the number of salespeople and how they perform with your customer assets. The "pie" is far larger than these people make it, but when you are convinced that the "pie" is their "pie", you, and your customers, lose – big time!
How do you determine the real size of the pie? Measure the average sale for each salesperson for any time period by dividing their total sales volume by the number of sales made. Do it the same way for everyone. Rank them in order of average sale, highest to lowest and find the average. Calculate how much more business would have been done had all the people performing below average performed at the average. Do the same thing for close ratio. Add the two together and add that to your actual total sales. You’ll see that at average performance levels your sales pie could have been about 15% bigger.
Look at the actual number of customers handled by each salesperson. Divide their sales by the number of customers they handle to get their Performance index. Determine the highest performance index, this is the person who gives you the most per customer opportunity. Multiply your total traffic by this number to see what sales might have been. Divide your total traffic by the number of customers handled by the person with the highest performance index. That’s how many salespeople you should have.
The Most Common Mistake: Having No Business Strategy
Last month’s article (posted to furninfo.com in the Marketing Management Index) spoke to this issue entirely because it is the single most pervasive mistake home furnishings retailers make. Strategy statements simply don’t exist. These are broad, holistic strategies that include everything from merchandising and advertising to sales, service, delivery, inventory management, vendor relationships, financial, facilities and community.
Merely saying "Our strategy is to advertise this way in order to attract these customers and we’re going to show this kind of merchandise at these prices" is not a business strategy. First of all, it does not address the most important point -- how you will engage your customers. Second, it doesn’t deal with how you will deal with employees. Finally, it doesn’t start with your personal vision for your company or your personal goals for how you and your family will enhance your quality of life through the business. (see also Larry Mullins’ series on Visionary Selling FURNITURE WORLD 08/00, 10/00 & 12/00 issues which are posted to furninfo.com in the Marketing Management Index).
How to Avoid Mistakes 2-5
Work on number one. Start to develop a cohesive, holistic business strategy beginning with a clear statement to yourself and your family regarding your vision for them in the immediate and long-term future.
Then, work on the overall business strategy as it relates to providing the resources you need to achieve your vision. It is, after all, your business. Speak to results. What should be the outcomes in revenue generation and bottom line profits?
Develop a belief system, a "Ten Commandments" around how you will operate on a day-to-day basis. How will you treat customers, employees and how should employees treat each other? What principles do you believe should guide your business practices? What is your company mission as it relates to your position in the community of citizens and retailers?
When you’ve got all this, begin thinking about the sales, merchandise, advertising and display strategies that match your customer engagement principles and beliefs.
Finally, build departmental missions and strategies that support your selling and merchandising strategies in that order. Then, start unmaking all those other mistakes.
Joe Capillo is a furniture industry veteran with 35 years combined experience as a retail consultant and retail industry executive. He is a contributing editor to FURNITURE WORLD and a frequent speaker at industry functions. See all of Joe’s articles on the furninfo.com website.
View all articles by Joe Capillo