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Using a computer
Learning to Work Smarter With Information
There was a speaker that when this writer was a dealer that frequently spoke at trade shows and conferences. There was a point that he made each and every time he spoke. It dealt with the need to utilize information and how computers could provide the necessary information.
The comment he would always make was, "Somewhere in America, today there is a business that is going to decide to put away the cigar box and spend a couple of hundred dollars to purchase a cash register."
That speaker's comment may be true. What is true is that technology is being implemented by our competition to gain tremendous insight into the buying habits of our customers. Perhaps you have read the book, "Why We Buy", by Paco Underhill. For some people this book was a tremendous eye opener. And for others, it was merely a statistical confirmation of what they already knew as a retailer - that you can increase your average sale and your sales per square foot when you leverage your knowledge about your customer so as to create a shopping atmosphere that is more conducive to the customer's spending money.
With Underhill's study, they have found that the average non buyer spends 2.36 minutes in a business, while a buyer spends 11.27 minutes. And if you think your customer comes into your garden center with a predetermined shopping list, again Underhill's study shows that 60 to 70 percent of all purchases are impulse buys.
The use of technology in a retail environment is moving so fast as witnessed by a clothing store chain that is now implanting a special tag in each article of clothing. When a person takes that piece of clothing to a dressing room to try on, a screen in the dressing room begins to play a short commercial about that particular item.
You may think this is fine for a large chain store, but what is there for me as the owner or manager of a single location garden center? It begins by being the business that has not only gotten rid of that cigar box, but has also dumped that $300 cash register in favor of a computer. At a minimum, you will need a PC or Mac stand alone unit for your office. Preferably, you would have a Point of Sale (POS) computer that will serve as your cash register, and will be feeding information to another PC where we can analyze it.
Let's begin with utilizing a simple statistic from your business - the gross margin. If we take the gross margin, and have information from the business we will quickly see what parts of your business have a better than average gross margin. We will also see what parts of your business have a lesser gross margin. From that small amount of information we can ask several questions. Where is the more profitable merchandise located? (It should be where customers are most likely see it) Can we find other items related to the higher margin products that we can add to our offering? If we do this, we will likely begin to see our overall gross margin improve.
What about the items that have a lower than average gross margin? Where are they located? If they have a primary location, why? These are the items that you are not making as much money with, and do not deserve to occupy your prime selling space.
What is it that a customer sees when they first walk in the door? Underhill's research shows that the customer will traditionally look to the right. This is where you need to place the merchandise that will bring you the most profits.
Speaking of the most profits, there is a second factor to consider. Consider an item that you sell for $100, has a cost of $50 and you sell three a year, you can calculate your total profit dollar contribution as being the $50 in gross profit times three, or $150.
What about an item that sells for $100, has a cost of $75, and you sell eight each year? The total profit dollar contribution for this item is $25 in gross profit times eight or $200.
With scenarios such as this, the most profitable item can be something other than what you would initially expect.
This is where our computer again comes in. Most inventory control software systems will utilize the information from your POS and tell you how much you are making on each item and how much that item is contributing to your business each year. Many of the software programs will assign a number or letter to each item which is referred to as a "velocity code".
While these are two great examples of using the information from a computer, most likely you are not going to have the time to perform this kind of analysis on each and every item you sell. Instead you will want to be sure that the information you receive is arranged in an easy to look at and use format.
For example, you will probably have several departments in your garden center. One department might be fertilizers. Within fertilizers you would have several subcategories or fine lines. Liquid fertilizers, packages less than one pound, packages of one to five pounds, packages of five to twenty five pounds, are all examples of fine lines. You might want to divide the products further by distinguishing indoor from outdoor products.
If the average gross margin of your fertilizers is less than that of your entire garden center, you would probably want to find out why. Perhaps you are carrying too many of the brands found in the chain stores. You may find that many of the customers are looking for a 50 pound bag of general fertilizer, without their having been told that a 25 pound bag of lawn fertilizer will not only last longer but is much more cost effective.
Experience has shown that businesses that have an owner that spends part of their work week, working ON the business as compared to always working IN the business, tend to be much more profitable. It is time to put away that cigar box, as well as that cash register. Business owners and managers who think that they "know what sells" and knows how much money they are making are often just flying by the seat of their pants, as the old saying goes.
Instead of flying by the seat of their pants, perhaps it is time to sit down and begin to examine the numbers.
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This article is copyrighted by Tom Shay and Profits Plus Solutions, who can be reached at: PO Box 1577, St. Petersburg, Fl. 33731. Phone 727-464-2182. It may be printed for an individual to read, but not duplicated or distributed without expressed written consent of the copyright owner.
Profits Plus Solutions, Inc.