Managing Profit Margins on the Retail Roller Coaster

Profit Margins_HFA blog

Submitted by Taylor Ganz, Profitability Consulting Group

These past two years have been particularly challenging for the home furnishings industry. Retailers have worked too hard during the last two years to raise profit margins to where they should have been and where they need to be.

If you are like many retailers right now, your warehouse spaces are probably bursting at the seams. Even if you are not over-inventoried “on paper,” deferred or delayed orders are arriving just as consumer demand starts to slow down, and you have nowhere to put it. Does this scenario sound familiar?

What can you do? The one thing you should NOT do is start widespread discounting to move products, or your margins will collapse. And NEVER discount best sellers. They’re your best sellers for a reason.

When planning your next promotion, avoid huge storewide discounts unless you’re just doing it for a one-to-three-day period.  A more profitable way to proceed is to highlight “Huge Savings in Every Department” rather than providing savings on every single item in the store.

Contact the vendor if you need to highlight savings on a particular line. It’s worth the time to contact the vendor to see if they will participate, whether it be through cost rebates or co-op reimbursement. And don’t forget spiffs! Giving spiffs to salespeople for selling particular products is a great way to help move products in your store.

As business eases, profit margins will be the key to profitability, and guess what? They always have been!

What can you do to prepare for the next turn on this business roller coaster? Be prepared! Taking time to plan now will help you immensely as you face the next business hurdles on the horizon.

  • Revisit your revenue forecasts and adjust your planning as appropriate.
  • Right-size your inventory.
  • Right-size your staffing, especially your non-selling staff.
  • Make sure your gross margin data is correct. Many retailers struggle to load freight surcharges, for example, into their costs of goods. This results in overstated margins, which can be dangerous as they try to cover increased operating expenses, especially if sales start to soften.
  • Ramp up your revenue-generating processes such as sales training, in-home selling, and improved visual merchandising, all of which are required to increase close rates and average tickets, two critical metrics in boosting your top line if both in-store and online traffic soften going forward.
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