Friday, August 10, 2012

Calculating Success



Q: I stumbled upon your blog yesterday and just wanted to tell you that although you are obviously a brilliant retailer, I believe you may have missed your calling as a writer. I have read novels that were not nearly as entertaining!

In one of your posts from back in February you mentioned that you were working on some sort of business consultation idea. I'm just wondering (for future reference) if that is still in the works. As a new retail business owner (April is my 6th month in business), I am constantly looking for any kind of helpful information, but finding very little. This is my first experience in retail of any kind and I am doing it on the tiniest budget you can imagine. When people ask "How's it going?" I always answer "Great!", but truthfully, I really don't know how it's going. My first month open, I had no idea whether to expect $100 in sales or $100,000. The only way I know to determine what kind of sales potential I have in this location is to find out what other similar shops in the immediate area are are doing, but it's not like I can call them up and ask. I am curious... how many employees did you start out with, and how quickly were you able to add them? I am a one-woman show here, and wondering how long I will be able to keep it up. At the same time, I don't see any extra money in sight, and I don't think I'm going to find anyone willing to work here out of the goodness of their heart. Also, with respect to when you were first starting out, was there one defining moment when you knew it was going to be a success? Or even if there wasn't "one" moment, how long before you felt confident that you had done the right thing? My confidence-level fluctuates daily.

So anyway, I am truly appreciative of every single tidbit of information that you are putting out there. Keep it up and I will stay tuned! Becky

A: Congratulations on six months in business. You are right to be concerned about all of this. No one shares, no one talks and no one has written a book for any of us with a small retail business. There are a few out there with too much worthless information when all we really want to know is how to do this- not get a Harvard education in retail. I learned the little I know by reading a lot of stuff- although my comprehension level is low as I only want to look at the pictures! I have asked a lot of showroom owners, reps, wholesalers and people that are really behind the business of retail instead of other shop owners, as they do not want to talk about how tough this is, especially now. Something is happening in the marketplace, the world and with consumers and although I am no expert, I have been doing it long enough to see a change going on and I am completely perplexed as to what it is and where retail is going. I am glued to my computer, TV and trade magazines every day to try and be prepared.

I understand your concerns with the money, sales and the general progression of your business. I was just that way when I first opened (and still am) and there wasn't a book out there that could help me on my level. I wasn't a restaurant or a Crate & Barrel or a fancy organization. I just wanted to be smart, stay open, pay bills, rotate products and not go crazy. I am not sure I have succeeded at any of these!

Here is a crucial piece of info someone told me once and it really helped me to see if I was on track: Retail businesses should sell between an average of $150 - $300 per square foot each year. This is calculated for the entire square footage not just your showroom space. So if your shop is 1,500 square feet you should be selling between $225,000 - $450,000 a year in sales after taxes. Divide this by 12 to get your monthly average which is $18,750 - $37,500. Frightening isn't it? But it is a great radar to stay in. The range is based on a couple things: Where are you located? High traffic, good parking -vs- a small town shop in the country. If you are in a popular shopping center the location alone can take your sales over the $300 mark into the $500+ per square foot which is what Pottery Barn & Gap's strive for. Consider this: The Starbucks in my center does $700 a square foot! But smaller, off the beaten path shops (small towns, off the major streets, bohemian neighborhoods) are usually at the lower end. The other crazy thing about retail is that it fluctuates SO much. One month you will be below that number, another month way over. It is enough to make you drink (more). Another factor to consider: If your business needs to sell $ 225,000 a year to be 'successful' then you need to have 25% of that amount in merchandise on the floor at all times to keep things rolling. Because the rule of thumb is to turn your product 4-6 times a year to stay active and in the groove of a professional retail venue.

So lets consider you just started, you rent 800 square feet and you are in an affordable place. Not fancy, not a shopping center but a cute neighborhood or destination place. The rule of thumb is this: On the safe but lower end you should be selling an average of $10,000 a month or $120,000 a year. AFTER ALL TAXES. You should have $30,000 in product on your floor at all times. This is at WHOLESALE cost and in a perfect world, you should have 4 months of overhead saved. (does anyone?). Here are also some numbers that may help. If you have $10,000 coming in each month then you should spend 48% of that on new product, save 10% (good luck with that) and the remaining is your overhead or monthly bills. Also keep in mind taxes have already been paid. So technically, around $12,000 came through your cash register. OK, now I have to do the math for my store because I am sure my numbers aren't anywhere near this either!

When I opened my first shop, all I wanted was to be able to pay the rent. I knew the sales would be there to do that but I was not sure I would ever be able to quit my day job to pay myself, but I did. From the first day we were open I was able to take a salary. So I guess in some ways I knew then the store was a success based on what customers would say and the press that miraculously appeared. I was also self supporting so there wasn't other money coming from anywhere. Some weeks I got paid, some weeks I didn't. I worked 6 days a week and bought antiques on the 7th day for the first 5 months and sometimes asked my niece to help me on Saturdays. I then hired a girl for $8.00 an hour to babysit the store while I went to market. She later stayed on to work Tuesdays by herself so I could have a day off and then I worked the store 5 days alone. I finally hired another girl and had 2 part time employees my second year and then changed to one full time, one part time my third year because I had to or I was going to lose interest and my sanity- fast. I did not want to hire as I was afraid of the money going out. But there comes a time you take that step from 'playing house' to 'business owner'. I am such a business owner now that I have 5 employees with paid vacations, Xmas bonuses, workmans comp, health insurance for my manager, etc. NEVER did I think it would get to this but it has. I still worry about every detail 24/7. From money to employees to customers to display to advertising - you name it. It's all my responsibility. Even with the BEST employees (and I do have them) it is still my job to try and make them happy, keep the store fresh and full of product, juggle money, plan the next season, stay educated on the business of retail, trends and the marketplace and buy, buy, buy.

You have just started so do not rush it. I would say just concentrate on keeping things fresh, be different, get to know local press and reporters, fine tune customer service and your email data base, have special events, and eventually a customer, friend or relative will come forward and help out on an as-needed basis. Sales are uncertain right now, not just for me but ALL over the country. Staying afloat is rule #1 so do what you can. When the economy turns then you can experiment and play with ideas more. For now, keep it interesting, pay bills and be creative with money and display. Planning ahead for an e-commerce site is also the future even if it's only eBay.

Best of luck and I would like to post this on the blog as I get tons of letters like this one.

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