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:
- Stay on top of vendors. Timely delivery from your vendors has never been more important. Your vendors can make or break your holiday sales. Punctual deliveries can mean the difference between selling through your inventory and maximizing your gross profit, or receiving your stock too late and having to take post-season markdowns, which will hammer your profits. "Expedite your deliveries with your vendors," Hurlbut advises. "Expedite, expedite, expedite."
- Identify slow sellers and mark them down. This is the flipside of identifying your best sellers. Just as you used sales figures from September, October, and November to identify hot items, your results from those months can also help you identify the slow sellers of the season -- the turkeys. These are the items that did not move at full retail price and it's important for your bottom line to clear them off your shelves -- even at a discount -- than when those items are competing with other clearance items later on. Hurlbut recommends discounting those slow sellers by 30 percent early on to help move them out, rather than slashing prices by 50 percent to 75 percent later on. "Further, by clearing them out early, you free up your displays to focus your customer's attention on your key items," he says.
- Plan for post-holiday gift card redemptions. Gift certificates and gift cards have become an increasingly important component of holiday gift giving. Retailers that offer gift cards earn the revenue before the holidays, but are at the mercy of customers as to when they use the cards to buy merchandise. The NRF survey of holiday shoppers found that only 36 percent of gift cards were redeemed within the first two weeks after Christmas. "The critical objective is to redeem them for full margin sales, rather than clearance sales," Hurlbut says. "If you've planned your inventory prudently, there's not likely to be as much clearance inventory, and there's room to bring in early transitional inventory in mid-December, which doesn't have to be marked down and can be sold at full margins."
Timely marketing to drive holiday sales
Small businesses can be at a disadvantage when it comes to holiday advertising. The big chains take out full-page ads, or spring for inserts, in newspapers around the country. They buy TV spots during prime time. And they blanket the radio markets, too. Those advertising markets are also open to small and mid-sized businesses, although they may be too pricey. But the Internet has provided a host of new ways to reach customers for low or no cost. In fairness, the best marketing medium for your business depends who you are targeting. NRF found that 78 percent of adults over 55 read a daily newspaper, but 48 percent of young adults aged 18-34 use instant messaging at least once a week.
Here are some online marketing strategies too consider when trying to boost sales during the holidays:
- E-mail marketing. The holiday season is a good time to use the e-mail list of customers that you have been compiling all year. But while the holidays may be a good time to send out a coupon or gift certificate that they can share with a friend, it shouldn't be the first time that your customers are hearing from you. "If you've been doing the right things and building a list all year long, you should take advantage of that. It's still one of the most cost effective means of marketing with the highest returns," says Jantsch. "But this can't be the first time I've heard from you, when all of a sudden you're desperate for holiday sales. You should be sending out alerts about new products, a show you went to, trends in color -- those are the types of things you should be sending out all year long."
- Online ads. There are a variety of ways to advertise your holiday promotions online. You can buy ads on websites frequented by your customers. You can also buy keywords from search engines, such as Google and Yahoo!, which will promote your website when someone searches the Internet using those terms. In addition, a new twist has been added recently -- targeted online advertising. Businesses can now target their online ads based on demographic information, such as location or age or gender. The major search engines now offer more customized options for ad placement, such as demographic targeting (age, sex, or ethnicity), geographic targeting, and contextual targeting.
- Social media marketing. Social media -- such as social networks and blogs -- present another opportunity for advertisers. But it's been difficult for advertisers to measure ad effectiveness when the social media audience is so fragmented -- until now. Keeping customers engaged about issues using a blog is one good marketing tool. Alerting them to last-minute sales via Twitter feeds might also be useful when it comes to the last few days of the holidays -- and unlike so many other promotions, it won't cost you anything.
Maximizing Profits during the Holiday Season
by Ted Hurlbut
The time to plan for a great finish to the season is now.
by Ted Hurlbut
Even in the rush and crush of the season, it's essential to do the end-of-season planning necessary not just to maximize sales but also to protect margins and cash flow.
Six Key Ways to Handle the Holiday Rush
Here are six ways to take advantage of the holiday business wave
National Retail Federation's Holiday Survival Kit
The retail trade group has a variety of statistics and charts segmented by types of industries that could help you plan for your holiday sales season.
Online Advertising through Social Media, IncTechnology.com, January 2009
Online Video Ads: How to Use Them, IncTechnology.com, August 2008
Targeted Search -- How to Optimize It, IncTechnology.com, March 2008