Experience sits at the core of every successful retail and hospitality business.
Evoking an emotional connection with the customer generates loyalty and encourages the customer to return. Retail & hospitality brand success comes from creating desire. Experiences in this sector can drive the deepest emotional connections with customers and brands as they provide incredible platforms to serve pleasure, interact and create appeal. It is therefore imperative that businesses within these sectors are able to create an experience that allows them to maximise profitability.
A study conducted by Vend, researched over 13,000 businesses within the retail and hospitality sector and found that in the UK the average gross profit margin was 52.48%. That being said, the difference in margins varied depending on the industry the business was in. Alcohol beverages had the lowest profit margins of 35.64% whereas, beverage manufacturers had the highest profit margins at 65.74%.
Now that we have an understanding of the amount of profit other businesses in this sector are achieving, it’s time to look at the various ways you can increase your profit margins. A simple Business Health Check
is one, as well as following the below recommendations.
8 methods you can implement in your business today:
1. Avoid markdowns by improving your inventory purchasing
Markdowns can drastically damage your profits, as well as give the impression of low quality, so avoid them whenever possible. To do this, start by improving how you manage your inventory. You should be aware of the products that sell quickly at full price and the ones that don’t. This information will help you be more proactive in deciding which products to stock up on and how much to buy to fulfil customer demand. Allowing you to prevent overstocking and therefore reducing the need for markdowns.
2. Elevate your brand awareness
Your customers must be able to find your retail business online. This can be as simple as creating a Google My Business profile, helping local customers to find your store either through Google Search or Google Maps. In accordance with Google, 88% of people that search for local businesses online, either call or visit the store they searched within the next 24 hours. This simple yet effective process allows for visibility for online consumers that can easily be converted into in-store transactions.
3. Find ways to reduce operational expenses
Streamlining operations is a key way for retailers to increase profit margins. There are several ways business owners can do this. One is to focus on labour costs and avoid overstaffing. Next, look at other costs like your product packaging, shopping bags and even your store lighting. Are there any costs that can be reduced? In the case of lighting, it may be worthwhile to invest in energy-efficient commercial lighting and look into switching energy providers.
Another way to reduce operational costs is by streamlining productivity. A usual culprit that contains repetitive tasks taking chunks of your staff’s time is data entry, tasks such as this can be automated to drastically reduce time spent and increase productivity.
4. Increase your average transaction value (ATV)
Increasing your store’s ATV is both an excellent way to increase profits. Retail is an inherently social “feel good” activity and, although technology helps merchants serve customers, nothing can replace the connection between an empathic and informative (but not pushy) sales associate and their customer. Teach your sales associates the art of suggestive selling. Once a customer is in your store, it’s on your sales associates to build a rapport, listen intently to their needs and find products that fulfil those needs. Studies have shown that 82% of consumers want more human interaction when they shop, and consequently those interactions between sales associates result in higher in-store sales.
5. Increase your prices
Raising your prices will enable you to make more money on each sale, thus widening your margins and improving your bottom line. Many retailers, however, hesitate at the prospect of increasing their prices out of fear that they’ll lose customers. While there are no set rules when it comes to pricing, as the decision is based on each company’s products, margins and customers. Aspects to take into consideration when increasing prices are components like your costs and margins, external factors such as competitor pricing, the state of the economy, and the price sensitivity of your customers. Try different prices until you find the equilibrium between demand and supply to increase profits.
6. Implement smarter stock purchasing practices
Make sure you are always looking for ways to lower costs. One simple way to reduce costs is to approach products by factoring in their final costs i.e. after wholesale cost, taxes, shipping etc.. Once you have that final figure, ask yourself, ‘Would I pay X for this?’. If you wouldn’t, you need to find a way to lower the cost or move on from that product.
Ask for discounts (e.g., free shipping) or other offers (e.g. throwing in a couple of extra products for free). This works particularly well when you’re buying in bulk. As long as it doesn’t hurt the vendor's bottom line too much, they should be happy to negotiate with a top customer of theirs who is bulk buying from them, although keep in mind products that are seasonal, large to store and date sensitive.
7. Plan ahead for each season
Most retail businesses have a season where their sales peak. A retailer’s peak season will vary based on their sector, product-type and their location. Retailers should get into the habit of looking at their annual sales reports, broken down month-by-month. Which months do they make the most sales in? Does that pattern persist year after year? If you notice that you sell a higher volume of certain product types in a given season, consider purchasing more units of that item to capitalize on its seasonality and maximize sales. A secondary benefit to planning your seasonal inventory is that suppliers may offer discounts for advanced or bulk orders.
8. Be smart about discounting products
typically goes against traditional advice on profitability, it could work to your advantage if you do it right
. Consider personalized offers. You must understand that not all customers think the same way. Some people may need a 20% off incentive to convert, while others don’t require a lot of convincing. Instead of killing your profits with large, one-size-fits-all offers, identify how big of a discount is necessary to convert each customer. One way to break this process down is to analyse your customer behaviours and gather information on your customers’ past purchases, browsing history, and more. By doing this you can plan out the most cost-effective way to convert similar customers.
If you are struggling to make way in your retail or hospitality business, don't despair, contact Ben
today and have a chat about how to improve your profitability and plan ahead
in your business.