One of the pleasures of traveling around the world is meeting smart, interesting toy industry commentators from other countries. Marek Jankowski is the publisher and editor-in-chief of Branza Dziecieca, the leading Polish B2B magazine covering toys and baby products sectors.He is a Board Member of Polish Toy Association and author of two books: “Little Big Company” and “Traps of Small Business” In this article, Marek gives us his thoughts on how retailers can increase profits in 2014.
The economic crisis is nearing to an end, but that doesn’t mean your life will improve automatically. After a few years of penny-pinching, customers will be more eager to spend money – but will they buy at your establishment? Not necessarily.
Many of them will visit your store to see the merchandise and ask your staff about its particular features. Once they do that, they’ll just grab their smartphone or tablet and purchase the product online.
Luckily, there is a way of protecting an independent retail store from the growing online competition. Interested?
Business is all about money. More specifically – the money remaining in your account after you’ve settled your taxes, paid your suppliers, employees and everyone else. One word: profit.
In theory, increasing profits is simple. There are two possible options: raising prices or reducing costs. Period.
“Simple”, however, does not equal “easy”. The more expensive the price of your product, the fewer customers will want to purchase it. Reducing costs also has its limits (also, I bet that you’re not exactly burning your money as it is).
Is it possible to earn more without repelling the buyer? It is. Provided that you’re ready for implementing a few changes into the way you run your company.
The most important factors influencing your business in the coming months: cellphones, the internet, shopping malls and the ever-multiplying competition.
What else can your smartphone do?
Cellphones have introduced some major changes into our lives. And they’re set to change even more things.
Once upon a time, you’d look at your watch to check the time – nowadays, you reach for your phone. The item on your wrist is nothing but an ornament. It doesn’t really matter whether it keeps the right time.
I used to take pictures with a camera, but now a smartphone will do. It’s small, you carry it around with you, plus it snaps some pretty nice pictures.
Searching for a particular address in an unfamiliar town used to entail using an inconvenient map. Nowadays you have GPS on your phone. Not only will it identify the location of the street you’re looking for – it’ll tell you which way to get there to avoid traffic.
Watchmaking, photography and cartography companies had to adapt or disappear from the market. What about trade? Watch this video:
Microsoft made these prognoses 10 years ago. Many of the discussed solutions have already been implemented in businesses such as Tesco supermarkets in the UK.
Unfortunately, smartphones are usually used for different reasons. Customers input the names of considered products in order to compare the prices online. Soon enough, they’ll stop doing it that way. It’ll suffice to snap a photo of the product on the shelf and let a dedicated app identify the product and find the online place, which sells it the cheapest. One touch and the order has been placed. You’re in trouble. Not only because of cellphones.
Can you imagine the travel industry without the internet? How about banking? The media?
What about selling toys? In 5 of the biggest European countries, online sales constitute 20% of the market. Some distributors admit that online stores are their biggest clients.
If you want to witness how the internet is changing commerce, look no further than Jeff Bezos. Amazon.com, which he created, is the world’s biggest online store. It’s used by 200 million people. Its sales for 2012 amounted to 61 billion dollars (in comparison, the sum of all toys sold worldwide is estimated at 85 billion dollars per year). During 2012 holiday season, the online giant has sold 306 products per second. Once again: per second!
One of the genius marketing maneuvers of Bezos was Amazon Prime. If you invest 79 dollars in this service, you won’t have to pay delivery fees for 12 months. In theory, the company should lose money on this (the average sum of orders to the Prime subscribers amounts to 90 dollars). However, it more than makes up for it thanks to the retail markup. The average customer spends 505 dollars per year on Amazon. The one that uses the “free” delivery spends 1224 dollars per year.
Bezos’ motto sounds like a challenge posed towards the competition: “No client will complain that something’s too cheap or too quick”.
However, the internet doesn’t just mean large commerce platforms. Online stores are being established by all big manufacturers (as well as smaller ones). That way they can increase their markup, become independent from middlemen and build direct relationships with the consumers.
If that wasn’t enough, even the “offline” competition is growing. Is your store not in a shopping mall? You’re in trouble.
Wandering city centers
Shopping malls are drawing people in like magnets. Once a customer spends money over there, he won’t be coming back to your place.
Some people can’t come to terms with this fact. For hundreds of years, city life has always been focused around the central point (such as the market square with the city hall). The last two decades have changed that completely. The focal points of the modern city are shopping malls, sometimes built on the city’s outskirts or even completely outside its borders.
The most prestigious streets, once the prime location for stores, are now full of empty premises with nobody willing to rent them.
Who would want to set up shop somewhere where nobody goes to shop?
We have taught ourselves to visit shopping malls. It’s cool over there during summers and warm during winters. We can wander from store to store without having to get wet from the rain and drown in mud. Everything’s under one roof, there’s a lot of parking spaces and the stores are available when you want them. We have gotten used to restocking during the weekends.
Shopping malls have introduced new standards into commerce. The comfort of shopping, influencing the customer with the interior design and a marketing strategy affecting all senses, analyzing results and constantly raising the bar – these are things, which some of traditional store owners have never even heard of, let alone possessed the ability and tools to manage them properly.
The competition on the toy market is getting stronger, as it’s no longer confined to the companies of that specific sector.
Everybody wants to make money off toys
Toys are everywhere. Specialty stores. Supermarkets and discount stores. Electronics’ stores and gas stations. Bookstores and newsagents.
If 10 years ago your store processed a thousand transactions per month, today half of them have been seized by shopping malls, while 20% of them have been seized by the internet. Your group of recipients has shrunk by 2/3rds. If you haven’t felt the pinch, it’s only because you inherited the clients of your now-bankrupt competition.
Stop for a second and truly consider what is it exactly that the customers see when they visit your store.
A room impossible to walk through without stumbling upon something? Shelves lined with a multitude of products, none of which really grabs their attention? No toilet? Nowhere to sit down? Nothing to eat or drink? No kids’ corner or free Wi-Fi? Nothing to create a friendly atmosphere and help one relax? Nowhere to park one’s car? Having to struggle through snowdrifts during the winter and risk breaking a leg on the icy pavement?
If so, your back is against the wall.
The markups are decreasing, because the competition is growing and the customers can easily compare prices.
Your clients are leaving you because you cannot offer them anything that’ll convince them to stay. They can buy the same exact product anywhere.
Do you finally understand why your business needs to adapt?
Now you can find out how to do it.
Conquer your client’s heart and wallet
There are two things that will make a client visit a store. Location and marketing.
If you’re in a place visited by many shoppers, some of them will stop by at your place. But even if your store is on the sidelines, a well-planned promotional campaign might be enough to draw a crowd.
What do you get from clients? Nothing but dirt on the floor and a mess on the shelves – that’s until they buy something.
There are three elements, which encourage shopping: personnel, product and the store itself.
Does your personnel work well? Does it have a rapport with the customer, can it identify his needs and make suggestions, does it utilize different selling techniques?
If not, you either selected the wrong people during the recruiting process or you expect certain results despite not providing the tools. You haven’t taught your personnel what the job is all about.
A client visits a store if he has a problem to solve. He’s looking for a gift for a five-year-old boy. Sure, he can search for tens and hundreds of products online, but he doesn’t know which one is the right choice.
The sales staff’s job is to identify the client’s needs and help him make a decision among 2 or 3 products that meet his criteria. Once the client makes the decision, the role of the sales staff is to upsell and cross-sell.
An employee who doesn’t know the merchandise and cannot drive a business conversation is generating costs instead of profits.
The toys you’re selling aren’t usually that special. They’re available at many different places. But even if you offer the same exact products as the nearby competition, you can still make your clients perceive them differently.
Witness the tactics used by such European commerce networks such as Ikea, Tchibo or Decathlon. Even though they have their own brands, they offer their clients services: transporting and assembling the furniture, coffee and cake on the premises or servicing the purchased items. This strategy has already been used by some online stores. Buy a washing machine and you’ll be offered an extended warranty, delivery and leveling, installing it and disposing of your old appliance. Each of these services warrants additional payments.
Sell your base products cheap, supplement them with an original offer with higher markups and make money from services – that’s the way of growing in traditional commerce.
Your store’s space is probably too small to fit in everything you want. But even a small interior can create a pleasant vibe.
Deliver stimulants, which will influence all of your client’s senses:
- vision: install soft lighting and clear signs (the store’s tidiness and the personnel’s smile also contributes to this category);
- sound: pleasant music will make your customers more relaxed;
- smell: a delicate, pleasant smell contributes to the overall positive atmosphere;
- touch: the store temperature should stand at 21°C/70°F, also make sure your clients have a place to rest at;
- taste: a vending machine with drinks and some snacks can go a long way; ever since birth, we have been taught to love the ones that feed us.
Final advice? Forget the fact that you have a store. Commerce is getting tougher to survive in. Shopping malls will always be more comfortable and the internet will always be cheaper.
Start running a company allows families to have a nice time. People are always searching for places where they can take their children. Create such a place and your internet competition will no longer be your problem.