How to Maximize Holiday Sales and Profits
Advice for small businesses on how to prepare for the holiday season by generating customer loyalty, implementing timely marketing, and determining inventory size.
Many small and mid-sized retailers will do as much as 20-40 percent of their annual sales in the final two months of the calendar year, according to the National Retail Federation (NRF), the nation's largest retail trade association. Other service businesses, such as restaurateurs, caterers, travel agents, etc., are also dependent on doing brisk business each holiday season. It's fair to say that, for many small businesses, the holiday season is a crucial make-or-break period during which they earn the profits that they must live off of for the slow first months of the next year.
"It's an absolutely critical period for maximizing sales and profits, and for squirreling away the necessary cash to carry the business until the spring selling season blooms anew," says Ted Hurlbut, a retail consultant and principal of Hurlbut & Associates. "September, October, and November are critical months for small retailers. Good planning then leads to the kind of December that will set them up to go into the New Year in a strong position."
That's why an economic recession, stormy weather, or fewer shopping days during the holidays can have a lasting impact on a small business. Retail sales in the U.S. dropped 2.8 percent during the 2008 holiday season, according to NRF -- the first recorded decline in sales since the group started collecting holiday sales statistics in 1995. Among small businesses, 29 percent reported lower sales than those reporting higher sales during the 2008 holiday period, according to the National Federation of Independent Business (NFIB), which conducts regular surveys on small business outlook.
The following pages will detail how to distinguish your small business during the holiday season, how to develop a sales plan for the holidays, and how to use marketing strategies -- including online -- to boost holiday sales.
Laying the Groundwork for Holiday Sales
Get started by generating customer loyalty. One of the biggest mistakes small businesses make is waiting too long to develop a holiday sales strategy. The planning doesn't start in November. That's too late. An NRF survey of holiday shoppers in 2008 found that 40 percent had started their holiday shopping before Halloween. So your planning for holiday sales should start much sooner than that if you want to be a contender. Start thinking about the next holiday season in January and make it a year-long effort to win the loyalty of customers so that they frequent your business year-round. Holiday sales, during which customers tend to spend more, will be a natural extension of this plan.
"That train is pulling out of the station earlier and earlier each year," says John Jantsch, marketing coach and author of the book and blog Duct Tape Marketing (2008 Thomas Nelson). "Some businesses have lived for so long with this cyclical view: I don't have to do things right all year long because the holidays will bail us out." But as the recession in 2008 and the ensuing drop in holiday sales showed everyone, Jantsch says, that may no longer be the case for many businesses.
The preparation for a successful holiday season is a year-long affair. "If price is driving any of the equation in any shape or form, they're going to lose," Jantsch says. "There are some very large chains giving away the store. The Abercrombie and Fitch and Gaps of the world are fighting for their survival. You have to find a way to be different that in many ways is not related to product you're offering."
One of the advantages small businesses have -- in particular, retailers -- is that they have a presence in the community that can be used to their advantage. Here are ways to use this attribute to distinguish your business during the holidays:
- Theme or localize your holiday promotions. Don't just tout your products -- that's something Wal-Mart can do a lot better and with a bigger budget than you. Highlight themes that may be relevant in your community and among your customers. "While people may be cutting back, they are seeing more of a return to family oriented, more traditional things," Jantsch says. "Develop holiday themes by tapping into some themes like that, not just based on your products."
- Reach out to church, community, or school groups. Build customer loyalty so that your patrons wouldn't dream of abandoning you during the holidays. Donate products to charity auctions. Sponsor local events. Reach out to local non-profit groups and let them borrow your space. Jantsch says he knows of a dime store in his community in Missouri that has built up such loyalty that "people would feel guilty about shopping someplace else."
- Sponsor demonstrations or events. Become known in the community for bringing in artists or craftspeople or speakers for public events. Jantsch knows of a small book store that has beat out the big chains by hosting author lectures by the likes of Garrison Keillor. The store is able to books at full price whereas large chain stores have to offer steep discounts.
Developing a Holiday Sales Plan
Choose your merchandise assortment wisely. When it comes to actually pinpointing what merchandise to stock and how to market these products during the holidays, the best strategy is to narrow and focus merchandise assortments, so that by the end of the selling season, the weight of the remaining inventory is on the proven best sellers, Hurlbut says. "Even retailers whose focus the rest of the year is on offering their customers a complete shopping experience must recognize that at this time of the year, the business must become item driven," he says.
The goal is to stock the products that your customer wants. During the holidays, shoppers' objectives evolve from considering a wide range of potential gift items to pinpointing particular products that they know "can't miss." In the last few days of the season, they are likely looking for one or two items they know will be just right for their friends or loved ones. Stocking merchandise assortments that meet customer expectations will ensure that sales and profits are maximized -- and markdowns are minimized.
Here are steps you can take to develop a holiday sales plan:
- Narrow merchandise to focus on your best sellers. The products that sold best in September, October, and November are likely to be the key items to drive your sales in December, as well, Hurlbut says. "These are items that customers have demonstrated they want to buy from you and that you simply can't afford to run out of before the season ends," he says. "Shift your focus from being fully assorted to being narrow and deep by identifying those key items."
- Finalize plans for November and December sales. Use the information you have about sales in your industry and the information you have about your holiday sales so far during the year to get a sense of what type of increases to anticipate in November and December. Use that data to forecast how much of your best-selling products you can reasonably expect to sell and to estimate what share of overall sales those items will make up. This is a critical step, Hurlbut says. "It's not enough to identify your best selling items," he says. "You must also quantify how many units of these items you expect to sell, and how that fits back into your overall sales plan."
- Determine how much inventory you want to end the season with. Planning an ending inventory to the holiday sales season assures that you won't run out of your best-selling items too early and lose critical traffic during the last few weeks of the season. Inventory planning is critical to profitability at this time of year, Hurlbut says. Determining the right level of inventory is a delicate balance. You want to keep your best items in stock to attract and win customers. At the same time, you want to avoid excess inventory that will force you to markdown heavily at the end of the season – that takes a bit out of your profits. Plan your inventories prudently and you'll be able to increase sales by driving your sell through, while protecting your margins and profits.
- Develop detailed purchasing plans for the rest of the season. These plans should grow directly from your sales and inventory plans and should detail items, delivery dates, quantities by delivery date, and vendors, Hurlbut says. "Focus your purchases on your best selling items," he says. "Clearly communicate your needs to your vendors, and seek out alternative sources if your primary vendors aren't positioned to meet those needs." If a product is hot, some vendor will have it -- or at least an acceptable substitute. Locating it can be critical to the success of your holiday sales season.
Take steps while the holiday season is underway. Once you have developed a detailed holiday sales plan, you can't just sit back and rest on your laurels. A small business needs to remain nimble and able to respond quickly to market events and surges or drops in demand. The following are steps you can take to stay on your toes during the holiday sales season:
