While 2020 started out with closures, quarantines and ever-changing regulations, many retailers were disclosing record sales by the end of the year, “best year ever” claims and similar results. Inventories of surfboards, paddleboards, skateboards, skimboards, wetsuits and accessories were emptied quickly, with refills slow to arrive. Loyal customers and new participants were eager to get outside, get active and simply get out of the house!
While strong gross sales were indeed a positive sign amidst a period of uncertainty, frustration and job losses, I was hesitant to celebrate too strongly since profitability had taken a hit. Retailers who’d had banner sales reluctantly admitted that net profit (the money that was ending up in their pockets) was LESS than the prior year. Wait what??? Sales were UP, net profits were DOWN! Retailers were working harder and longer, sold lots of goods yet made less money—what happened?
This disappointing realization was the result of unexpected/unbudgeted expenses, increased costs and low margins in certain categories.
- Unexpected costs to create COVID-safe retail environments tapped profits.
- Many retailers spent a lot of money to develop or enhance their online presence—new websites, upgrades & maintenance, Google Adwords, additional personnel & supplies and more—the boost in sales took many months to offset the necessary expenditures.
- Freight costs, especially those for surfboards and paddleboards, rose exponentially throughout the year, squeezing already-thin margins.
- Sales of boards and wetsuits, while strong, don’t provide the needed profits to cover the costs of today’s retail business. Margins for these categories are generally less than 40%, while the average cost of business for a specialty retailer is 44+%.
- Sales of apparel, footwear and private label goods overall were soft in the first 3 quarters. These categories are much more profitable than boards and wetsuits, but low sales reduced profits.
With these factors in mind for 2021, retailers must take an extremely close look at costs, pricing, margins and more while completely understanding their impacts on NET profit (the money that ends up in your pocket)!
- Review and re-evaluate the pricing strategy/formula for determining the retail price of all products. HINT—“Keystone” isn’t good enough to make you profitable!
- Increased focus and priority on private label/shop-branded goods—should be at front of store, near cash register, on first page of website, and used for most donations & giveaways.
- Consider the option of having a UPS/FedEx account for all vendors to use in shipping your orders.
- Closely track all discounts, giveaways and “bro” deals—these should be input as marketing/advertising expenses, while being budgeted against monthly sales.
- Monitor product sell-through; know what’s selling AND what isn’t selling! Reorder the winners, put the losers on sale!
- Closely review all invoices. Ask key vendors for discounts, free freight, specials, etc.
- Ensure that all orders be shipped complete—no multiple shipments on same P.O.
- Track website/online sales and expenses separate from brick-and-mortar operations. Web/online should be a separate business entity to ensure that the added sales are much higher than the required costs and expenditures.
These are just a few thoughts to help you end up with more money in your pocket at the end of 2021! Please contact me if you need more insight on any of the areas above. Have a profitable summer!!
Mahalo
Dave Seehafer info@globalwaveventures.com 949-466-4110