How Much Margin is Too Much to Give Away?
Q: "When all the stores around you are discounting and starting sales early, how much margin is too much to give away? And will customer service really win out over so-called sales efforts?"
A: So, Sarah, how much is too much to give away? If I buy it for $5 and I price it at $5, that's too much for me to give away. If I price it anything less than $10 for me, that's too little because there's an awful lot of things that happen to that merchandise.
It gets soiled, stolen, broken, doesn't sell. If you had a sophisticated POS, it would be able to tell you that with all the promotions you did, your net margin on that item was X. Most of us don't have that kind of detail.
Just giving margin way to attract the dirt scratchers as I call them, doesn't build your business. It's a different customer.
If your Bath bombs are $9.98 and they're the best bombs in the world and they're made with, I don't know, gold flake dust that you can't find anywhere else, then you better make sure you treat that as the premium item it is and mark it up.
But if everything is pretty much the same as I can find at Walmart or somewhere else, then you're going to be stuck with low margin. And the problem with that is that you pretty much have bought yourself a job because the merchandise probably won't turn as high as you need it to.
I encourage you to go to Salesrx.com we found out that 83% of my customers within six months, have reported double-digit increases. I can absolutely guarantee you that a great customer service and retail sales training absolutely wins over dirt scratches.
Because here's the problem. If you go through and you take that $5 item and you sell it for $7 and you should have really gotten another $3 on that, you're going to have to make that up somewhere else.
And the more you keep doing that and doing that, it means you have to sell more merchandise to try to just be at breakeven. And the problem with that is you haven't been able to do that now that you're discounting everything in the store which makes that deficit even more. And now you're saying, "Oh, I'm underwater."
Well, you're the one that can fix that.
So buy items that can't easily be Googled, they can't easily be sold and they can't be easily commoditized and don't keep going after that dirt scratcher because a dirt scratcher doesn't make you rich.
I have an awful lot of Facebook fans here and a lot of you are doing a really good job and you are living the life that you want. You always want more if you're like me, but you are being very successful. And I think that an awful lot of retailers go through and they don't expect it and they expect that it's going to be hard or that they can't get the money or "those damn customers - I'm not going to put money in my employees because they're just stealing maybe," right?
And the whole look of it is, everyone is taking.
The best retailers think about how do I give?
How do I give that feeling that shoppers matter? How do I go through and give that feeling that when they drive all the way to my store that they're not going to be getting that cold online analytical algorithm based, "Hi, can I help you find something?"
That they're actually going to connect and I'm going to actually hold my feet and my associate's feet to the fire to make a sale. You've got to be able to duplicate a process to take a total stranger - by using enough engagement that can actually bond - and become a friend.
And then become a trusted advisor and those people then rave about you online. If you just engaged with an open heart and you put yourself out there, it can be great, but I think too many retailers are still timid.
Now you know who you are in the toy business, photo business, baby business, gift store business, home goods or the apparel business and you think it should be easier.
Many of you go to conferences and share war stories, "Oh, I want to tell you about Amazon," but you know what?
Amazon is still going to be here. Just like Walmart was the big one in the '80s. Or Starbucks was in the '90s. They're not going away and you can't lock them out, but what you can do today is do what I did at South Coast Plaza almost 35 years ago, which was to say, "this has to change."
I'm going to come to work with a new set of eyes and ultimately I'm going to enjoy this and I'm going to enjoy it so much, the people I work with are going to enjoy the thrill of it.
They're going to be able to share that with our customers. We're going to have the best holiday ever. That's who I want you to be.
That's what I want you to strive for, and if that's not you, then do a little work inside. Meditate, do something. Talk to some friends and say, "I really have got to get my head out of this bag that I've been in for the last 10 months because we have to get ready for the holidays."
So go out and do something or splurge or stay at an expensive hotel or go first class to Vegas or do something to mix it up because you are the only one that can change.
I can't change you and nobody else can, but you know what? With that next shopper who walks in the door, you can.