Sunday, June 26, 2011

Retailer Rookie Mistakes

A few of you may know that my "real world" background is retail. During my career I (and quite a few of my fishing buddies) have been involved in operations and financial management for some of the country's largest retailers. Recently I had a "non fly fishing" retailer experience that left me scratching my head and wondering if we all shouldn't consider it in our retailer lives.

It all began when I mentioned the need for new mailbox numbers to the Editorial Trophy Wife. She handed me a $10 off $10 purchase coupon she had been holding onto and suggested that I visit our local hardware store. It's not the company I usually buy from but it is close to home and even with my "big box" work background I really like to support small business in our town.

The store was nice and stocked with a bit of everything. Someone asked me what I was looking for and I told them and was pointed right to the mailbox numbers where I found the ones I was seeking. I also picked up a few more things that I didn't really need and had about $15 worth in my cart when I rolled up to the cashier. She rang me up and I presented her with my coupon for $10 off to which she replied, "oh you have to spend $50 to use one of those." I mentioned that the coupon didn't say that, to which she said, "Someone brought one of those in the other day and that's what they told him." I wasn't in the mood so I put all but my mailbox numbers back, made my $3 purchase and hit the door.

I understand very well that this coupon came from the buying group the store was part of and that the individual stores don't have to honor them or can make their own rules. Without even considering the fact that this particular coupon is only made available to people who have recently moved into a new home, I would struggle to understand the logic behind putting a dollar amount restriction on its use.

Let's guess that this business owner makes about 30% gross margin on an average sale. This coupon costs him $10 of that margin so he needs to sell around $33 to make up for what it cost him to get me inside his doors. A JD Power study recently released says that the average home improvement customer spends $1,650 per year (for once I am above average) making me worth $495 of gross margin to him each year. If I only stay in my present area for 5 years, then he just lost out on $2,495 in gross profit and $8,250 in sales. Keep in mind again I am decidedly above average in this respect. As baby boomers age and new generations struggle with economic pressure on their disposable income, customer attrition will continue to be a major issue for retailers of all sizes.

Now suppose a consultant sat down with this particular business owner and said that he could bring said same business owner new customers at a cost of around a half of a percent of the first years sales. What do you think he would say to that sort of proposal?

This same sort of scenario plays out every day in business of all size. It takes the form of poor customer service, hassles on returns and exchanges, and restrictions on discounts etc. I have seen it both in small business and among the front line managers of major retailers. Typically it is the result of a failure to see the bigger picture and place the correct value on the relationship with the all important customer.

Again this wasn't a fly fishing retailer but it's still something we all should consider as retail managers. What rookie retail mistakes have you made? Feel free to spill your guts it in the comments if you dare.


FlyFishingCrazy said...

Nice post... I need to look at how I can apply this to my website.
Here's my thoughts though... So in effect, the 10 on 10 deal was off the table, but they were still offering you a 20% discount. Having already been at the store with $12 worth of products in the cart that wasn't on your list that took you there, and you say you are an above average hardware purchaser, you only needed another $35 worth of items, that you will buy eventually, and get that 20% savings. In many cases offers like this can be misleading, whether intentional or not, but if the deal is still good and you know you will eventually need that potting soil or bug spray, why not make the best of what you can.
I think we all have gone through the reaction of feeling cheated, and we remember that the next time we drive past that store on the way to "Big Box", but was turning down 20% after already using the $3.95/gallon gas to get there a rational thing to do? Or could you have made lemonade from the lemons they served and left refreshed.
I have offered 20% off of TL Johnson fly rods and a week after the sale ends, someone buys a rod. ????

Anonymous said...

Somebody pays you $400/hour for this? You admit to spending >$135 month at home improvement stores; yet can't find enough stuff to get your tally to $50. I also suspect you didn't read the fine print.