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Fresh Thinking for Uncertain Times

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It's no secret to anybody running a small or independent retailer that we're operating in an unprecedented economic environment. Right now, it feels like the only thing that we can be certain about is uncertainty. Credit is extremely tight, and forecasting sales is like throwing a dart. The only bright spot is that gasoline prices have begun to descend from the stratosphere.

Most retailers are struggling on the top line right now. The only major national retailers who seem to be reporting increases are Wal-Mart, TJX and the warehouse clubs. For everybody else, the internal metrics are just about the same; weak traffic counts, conversion rates, average sale and units-per-transaction.

In an environment where everybody else is running sale after sale after sale, it can be hard for a small or independent retailer to know how to respond. I have long advised small and independent retailers to avoid competing on price. I believe that sustained success for any small or independent retailer flows directly from compelling product offerings, exceptional product knowledge and customer service, and an in-store experience that appeals directly to each customer's passions and aspirations.

In keeping with that, I have consistently advised against running sales or price promotions. Driving sales by dropping prices has been a slippery slope that few retailers are ever able to get back off of. But, as we have seen in the daily headlines, unprecedented times require fresh thinking and pragmatic approaches, even ones that you've been fundamentally opposed to.

In working with small and independent retail clients who share my aversion to sales and price promotions, we've sought an approach that strikes a balance between the need to offer customers exceptional values while maintaining the store's fundamental pricing integrity and brand equity.

Here's what I would recommend many small and independent retailers to consider. First, identify narrowly defined categories of merchandise that you can develop promotions around. Each offering must be meaningful and compelling. It might be a specific sub-category of merchandise, such as dresses, or silk flowers, or lamps (depending on the store's particular retail niche), or it might be a specific vendor's branded or designer line. The offering may also be driven by inventory levels, focusing in on categories or subcategories that are somewhat heavier than others.

Then, establish a promotional calendar, through the rest of this year and into the early part of next year, at least. Plan a promotion every two to three weeks, each lasting no more than two to three days, and running on the best sales days of the week. Do not run the promotion longer than several days; if you do it tends to blur the distinction in your customers mind between promotional and non-promotional periods. Determine which grouping of goods would be most attractive for each promotion, and be sure that each promotion in turn is featuring distinctly different merchandise from the prior promotion.

For each promotion, offer a single grouping of goods at a significant discount, at least 25 percent off, perhaps as high as 40 percent off, depending on the discount level necessary to grab the customer's attention. You're not putting large swaths of the store on sale, so you don't need to be as concerned about the impact of deeper discounts. The key consideration is offering a discount great enough to drive traffic into your store.

Focus your advertising of the promotion around your customer email list. Target your offering to your best customers, those customers that value your store enough to give you their email addresses. These are the customers that you want to get into the store. These are the customers who have demonstrated that they will buy from you. If you feel you need to communicate more broadly, simple ad in the local paper would probably be just fine.

Be sure to run an unadvertised, in-store special in addition to the promoted merchandise. This will drive up your units-per-transaction and your average sale, while delighting your customers and giving them an extra reason to come to the next promotion. Also, ask your vendor whose merchandise is being featured if they have any promotional items that can be used as giveaways.

Dress the store up. Make it an extra special place to visit. Change out the displays and vignettes. Make sure everything is properly accessorized. Be sure to feature the promoted merchandise prominently to the best effect. Set up a coffee urn, bring in some coffee cake, do whatever it takes to fully create the warmest possible atmosphere.

Most important of all, every customer entering your store must be greeted warmly as a returning guest, invited in and immersed in the atmosphere you have created. Each member of your selling staff needs to fully engage their customers. Each customer must come away with an experience worth telling their friends about.

The business objective of each promotion is to drive traffic, conversion rate, units-per-transaction and average sale. The point is not just to sell the items being promoted, but to generate add-on sales of un-promoted, full margin merchandise. By focusing each promotion on a narrow slice of the store's merchandise, and not putting the whole store on sale or running an early clearance, the store's brand equity and pricing integrity (not to mention profit margins) are maintained as much as possible, while still driving the top line.

Difficult times require difficult choices. Most small and independent retailers take a very principled, strategic stand against competing on price or running promotional events. And many of them know they simply must offer their customers special values in this uncertain environment to get them into the store and spending their money. Finding the right balance is the key to achieving the necessary short-term results without sacrificing long-term integrity.

Last updated: Oct 21, 2008




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