7 Easily Missed Danger Signs Your Retail Business Is Failing

Bob Phibbs
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small business warning signs

small business warning signsI remember a buddy of mine who went to work for Circuit City. He did a great job and was promoted many times. Because each employee’s paycheck was impacted by how much they sold and that didn’t get returned, their salespeople knew they had to learn the products and go around helping people. If they didn’t maintain their sales numbers, they were weeded out.

 In July of 2000, when Circuit City’s new CEO announced they would no longer be selling appliances, my buddy knew it was time to leave. They also got rid of commissioned salespeople. By 2009 all stores were closed. 

My friend got out years before they imploded. Why is it employees often see danger signs before owners and managers? Because they see things through the lens of a customer and their own paychecks.

To help you see your danger signs, I’m sharing seven of the danger signs I’ve seen in businesses of all sizes.  If you do not take action to stop or fix them, these dangers will overtake your business.

7 Danger Signs Your Small Business Is Failing

1. Reliance on discounts. Think of the brands most in trouble right now and I’m sure you’ll think of GAP with their endless 40% off this weekend only and Bed, Bath, & Beyond with their endless coupons. When you constantly drum the sale items, you teach your shoppers to only buy when things are marked down. That ruins margins and morale.

 2. KPIs falling. The most important metric everyone still looks at from smaller to larger stores is simply, did you sell more this year than last?  While you can have an online store, BOPIS, and other strategies to attract customers to you, the only thing that really matters is if they buy from you. This is true in-store too, your average number of items sold per customer should rise; it is the one metric your employees can most impact. Of course, if you don’t have a solid training plan, you’re only hoping for increases. Hope is not a strategy.

 3. High employee turnover. Employees quit managers not companies. When a job is seen as repetitive, mindless, and not rewarded, good employees look elsewhere.  You can check any business on Glassdoor to see what current and former employees really think of your job, but your number of W-2’s you sent last year shouldn’t be a huge increase from the prior year. If it is, your employees are walking due to stress, anxiety, and frequent boredom.

 4. Customers are not important/Lack of Urgency. A struggling business looks at shoppers as a distraction from their tasks or their conversations. I kid you not, I had a buddy of mine go into a hardware store last week in his wheelchair, approach the counter, and ask for help. The guy simply replied, “I’m on break,” and walked away. The odd thing is, another employee had helped him so much the previous day that he went out of his way to return. Never again. When employees can get away with behaviors like this, it shows no one is managing the store.

 5. Owners not taking a paycheck. I received a request for consult this week from a woman whose business was struggling. She wondered iif she and her business partner should just declare Chapter 11 and be done with it. They hadn’t taken money out of the business for two years. I had recommended she get a copy of my book before we spoke. On the phone, she told me that she just started reading it and realized she had been running her business all wrong, and when she read that I had written, “If you’ve taken another job to support your business, you’re doing it all wrong,” she felt I was talking to her. She told me, “I’ve taken a $20 an hour job to be able to pay an employee $15 an hour at my store. What was I thinking?”

 6. Undercutting employees. I used to work with a coffee chain and we had spent months developing our version of Pumpkin Spice for the fall. The team had taken care to get input from several people and sign-offs on the taste profile. Over the weekend, prior to giving the order for the products, the owner capriciously said he didn’t like the taste and demanded a change. Within 24 hrs. the team got a sample he liked but no one else did. The launch failed spectacularly with customers and left the new-products team demoralized; several left shortly thereafter.

7. High costs to acquire new customers.  In 2018, online furniture retailer Wayfair revealed they had spent $196 each on its 3.6 million new customers. Brick and mortar retailers often run sales and promotions to get shoppers to come in the door, but unless your average ticket can support it, you often are chasing your tail.  While it’s true, promoting loss leaders is a tried-and-true way to get shoppers, without margins, it can be destroying profits. If your untrained staff can only sell the low-margin, low-profit sale items, it makes it even worse.

See also, Retail Management Tips: 15 Ways to Increase Profit Margins

 In Sum

Smaller businesses often-times will tout, we own the building, so we have more room to maneuver and even large ones like Macy’s and Hudson Bay have eyed their own real estate as a buffer to lower sales. But that can only do so much.

The point of this post is to not kid yourself that lower key performance indicators are the norm, or your crew is wonderful because they tell you.

The keys to taking your store to the next level all lie in how well you continue to guard against these seven warning signs and take the challenges to them seriously.

If you’d like help with that, just let me know.

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