By T.J. Reid
For now, we aren’t going to talk about Open-to-Buy and overstocked or poor season sales. Today let’s tackle EXPENSES!
Remember when you deduct the cost of merchandise from the sales figures, whatever remains is what you have left to pay all those other bills. (No running to the bank for borrowing!) The only way to successfully operate is to make sure your expenses do not exceed your gross margin percentage (what is left after paying vendors).
Rent is probably your most important cost, perhaps even over employee salaries. Once you sign a lease, this amount cannot be altered. Pay close attention to the amount of the lease, as well as the content and expiration. Know what you are responsible for, and for how long. You should only spend 10 percent or less of your monthly sales for rent.
Salaries and employee costs should run around 15-16 percent of your sales. Many retailers try to cut that down by having fewer or untrained people on staff. Do not scrimp on this and leave your store unmanned when needed. You may lose much more than an hour’s payroll on just one shoplifting episode. Many retailers offset higher salaries with better in-store relationships, rewards, environments, and employee discounts.
Utilities can usually not be changed much, except by making sure the store is properly insulated, the doors not left open, etc. Phone services have so many variations today, make it easy. Chose one for phone and Internet.
Advertising – my favorite – is a place you should NOT try to cut. If you are a new store, you probably need to spend upwards of 7-8 percent to get your name out there and your business introduced to the public. If it were my established specialty store I would try to spend 5-6 percent to continue my good business and customer rate. Please do not go to 3 percent or less. You are not telling anybody anything!
Find fun ways to communicate with, and delight your customers. Parties, giveaways, or even just “a martini with markdowns” event can create excitement. Partner with other merchants, restaurants, cleaners, spas, diet centers – anyone who also serves your target customer. Together you will save and succeed.
Postage rates continue to rise so pay close attention to those costs, but do not eliminate direct mail. Use on-line mail services and bill paying. Perhaps direct mail a little less often, but most of your customers are not solely dependent on emails and Facebook. And they are deleting some before even reading. A postcard is in their hand and on their refrigerator! Most Important: do not, I repeat, do not email a birthday card. The entire purpose of this process is to be warm, caring and friendly. Email is not!
Property tax rate, insurance, etc. is just a fact of life, but you can control your bookkeeping expenses and legal fees by doing a lot of this in-house or researching to find good, but inexpensive professionals. Maybe that cute, young C.P.A. might want to trade-out for clothes or at least, spend her fee with you.
Market expenses are also in your control. Use free room offers, discount travel, and of course, always eat in the showrooms. In Atlanta, Sandy and Bob Smith have a menu to die for, including her homemade ice cream; Tim Philbin’s wife cooks a fabulous meal; Ambrosia has lots and lots of goodies, and BF&J are known for fabulous barbecue and carrot cake. Find the perfect place for your taste. There are lots of choices for clothing AND for lunch!
Also there are frequent airfare sales. (I already have my tickets for two markets ahead!) Plus some folks love to drive to market. It gives you the opportunity to relax and contemplate seasons past and to come. And having a roommate is not a crime. Not only will you save money, you will network and probably improve your business by sharing with your mate!
T.J. Reid is editor of FASHION ADVANTAGE, a magazine for small store owners. She presents a workshop every Saturday at 10 a.m. during Atlanta Apparel shows. For more information visit www.tjreid.com.