Depending on which country you are in the percentage rates vary, however it is a fact that most retailers fail within the first five years, across the globe. There have even been many big names go under, so I thought it would be a good idea to disclose the reasons behind most failures, in the hope that “forewarned is forearmed” and thus hopefully help any new or struggling retail business owner.
Today I will highlight 3 of the top 5 reasons why retailers fail.
Next week I will give you the top two.
No. 5 – Ineffective Marketing Strategies
Poor marketing plans. Many retailers tend to market their business as the year progresses and only if the funds to do so are available at that time. Their plans also often concentrate on main events only, e.g. Christmas, rather than business specific events as well, such as V.I.P. nights. Make sure to plan 12 months in advance and then budget for funds to be there.
Poor tracking, resulting in use of wrong mediums and limited impact. Money spent on advertising needs to go where it will have the biggest impact and now, with the advent of so many new options to promote with, (social media for example), it has never been more important to track the effectiveness of every promotion. Using things like ‘calls to action’, e.g. traceable coupons/vouchers, “what brought you in today?” and door counter analytics for conversion ratio, will definitely help in this area. Also note the amount you spent on each medium versus the profit made from any increase in sales compared to the same time last year. If any medium performs poorly then don’t use it again next year, or reduce money allocated to it.
Poor Customer Base Utilisation. It’s a proven fact that 80% of sales come from 20% of customers. These are those loyal few who have decided you are the best place to go, for the types of offerings you supply. They rarely consider comparing your prices as they have already decided you provide the best VALUE for their needs.
The other 80% have no loyalty to you and are mostly motivated by price, or to be more accurate, by perceived value. If they don’t perceive you as being the best place to go, they will scour catalogues for what they THINK is most important i.e. best price.
And yet most retailers will spend copious amounts on advertising trying to attract fresh customers and using price as their reason to shop there. The exact thing that 80% of non loyal customers are attracted to. Meanwhile they spend very little on nurturing, rewarding and encouraging repeat custom from their existing 20% of loyal clients. Just how much more profitable would they be if their loyal customer base was sitting at 30%, or more? As little as 10% more sales can easily be the difference between a failing business and a successful one.
# 4 – Poor Tracking of Market Trends
Monitoring Industry Key Performance Indicators, (K.P.I.s), is important if you want to know how well your business is doing, compared to your competitors. If others are spending way less on wages, or rent, for example, then what are you doing wrong and how can you fix it? Perhaps they are spending more on marketing… compare your KPIs against industry averages and then act where necessary.
Demographic Research is often done before a business commences trading, but rarely repeated thereafter. Meanwhile changes are occurring in virtually every local community on a regular basis; perhaps a university opens, attracting the youth market to the region, maybe a retirement village or aged care facility opens up, bringing an older market… even a new shopping centre nearby will affect things. Make sure you refresh your demographic research yearly, or at least whenever the latest census results are released; then assess your range of offerings and price points accordingly.
Market trends change regularly, just ask anyone in Fashion for example. If you aren’t monitoring these trends then you will probably continue to promote and range the same products you always have and wonder why sales are down as a result.
# 3 – Inefficient Human Resources
Inability to Attract and Retain the Right Staff, let alone maximise their skills. If you’ve ever used personality tests, you will know there are certain types of people who are more likely to succeed at certain roles than others. For example, people with outgoing, persuasive personalities are often better at selling than the more reserved type. Meanwhile a good salesperson is often not so good at administrative tasks, such as filling in repair details and following up on issues.
Unfortunately there are way too many people in retail who are simply not suited to their roles and when they are constantly stepping outside of their comfort zone, they get stressed and thus start blaming whatever they can find, (other than their own personality), before usually looking for work elsewhere.
Half the problem is in the presentation of the role itself. If you need someone process driven to handle payroll and accounts, then make sure you advertise the fact. Use the right types of wording in your advert
ising to attract the most suitable applicants in the first place. Then use a personality test to make sure they aren’t pretending to be someone they are not, (just because they need a job).
Make the work environment and any incentives relate to the personality type too. For example, a simple “job well done” works best for reserved people whereas commission drives sales minded people. Yes, we all like a little extra money but some are far more motivated by it than others. Find out what motivates each individual and then think of ways to appeal to that, before the need arises to limp down the warnings process and performance management path.
‘Stay tuned’ for next week, when I will give you the top 2 reasons why retailers fail. I will also tell you the one thing you can do, above all else, to prevent all five of these issues from happening to you.
NOTICE: Content in this article has been provided in a generalised format and is not recommended for every business model. Seek council from your financial advisor before implementing anything contained herein.