We frequently hear comments from jewelers about how hard business is and they wish there was a way to wave a magic wand and increasing profits almost overnight.
We’ll I’m no magic fairy and we all know making business changes is more akin to turning an ocean liner than a tugboat. If I had to talk about the most effective strategy for raising profits with the least amount of effort then I would say reducing your discount (or increasing your margins) is the most effective way to do it.
Every day most jewelry stores leak hundreds, if not thousands of dollars in discount that is largely unaccounted for. It seldom appears as a line item in the profit and loss statement, nor does it get much scrutiny when the end of month figures are reviewed, yet it is probably the single greatest expense for any retail business.
One of the most effective ways to monitor it is to produce a daily sales report from your financial system that should show you the amount of discount you are giving away each day. You can check these reports monthly and annually to see the accumulative effect. Once you realize you’re giving away the equivalent of an extra employees income you soon realize what these discount decisions cost you!
One of the problems with discounting is that once you start with a customer it can be hard to stop. My colleague, Michael Dyer, recently came up with an analogy that summed it up brilliantly (as a grandfather, he could relate to it first hand!) He describes offering discount as being very similar to picking up a crying newborn baby. At first it is a short term solution to the problem – but the trouble is the baby, realizing it can get this response, will resort to crying each time to get what it wants – and having trained it to respond in this manner you have then effectively created a rod for your own back.
Discounting is the same – once a customer realizes you are open to negotiating (and how low you are prepared to go) they will expect it every time, and won’t understand (and can become angry) if you then aren’t consistent. The reality is however that you can’t offer the same level of discount on every item.
Many jewelers tend to ignore discount as they see it as an area over which they have little control – they feel uncomfortable and pressured by the customer and tend to lose control of the situation; however a few simple steps can be taken to regain control and see the leakage reduced substantially from where it was: If a customer asks for discount celebrate! It means they want to buy it. You have now moved beyond selling and into the area of negotiating. They are a step closer to buying and the game has moved in your favor.
Don’t offer one! 50% of customers will accept it if you explain that this particular item can’t be reduced. This step will cut the discount in half, immediately. Those who won’t accept it won’t walk out the door immediately. This gives you the opportunity to deal with them as outlined below:
• Offer an alternative. Vouchers (which will cost you less and bring them back in-store) or discount on an alternative item with more margin, or one that you really want eliminate from your assortment.
• You’ll be left with the 10-20% of hard -core bargain hunters by now. You don’t have to give in straight away! Many customers enjoy the challenge and will, in fact, be suspicious if you give in too easily. Offer a level less than they are asking and many will accept.
• You’re nearly there! If they are still insistent give them what they want (within reason). It is better than losing the sale. But following this strategy and training your staff in this manner will cut your amount of discount given away by hundreds of dollars each day.
It is important to discuss the daily discount with your staff. One store who let their staff know the amount being given away each day, and named the amount given away by the heaviest discounting staff member (but not their name –they knew who they were by seeing their own sales reports) saw an immediate drop in the willingness of staff to discount and a sizeable reduction in the amounts given away.
It is a law of nature that you will get what you concentrate on the most --whether it is good or bad. Concentrate your thoughts on why the economy is bad and the economy will be bad. Concentrate your thoughts on finding a partner and you will find a partner.
Focus on reducing discounts and see the results.