As specialty retailers and small business owners we judge ourselves. We evaluate the performance of our business and we are looking for constant increases in sales, market share, and our bottom line. Is this constant crave for BETTER/MORE/HIGHER actually toxic to our business and making us perform worse?
What is improvement?
Improvement can be measured in a variety of ways. An increase in a metric, faster results, or targeted growth. It’s so rewarding to put forth meaningful effort and to follow, measure, and track the progress of our improvement!!
A classic metric that retailers measure is sales. Are we up or down to last year’s comparable period? And what does it mean? What caused it? How did we react?
When a retailer wants to grow sales, they typically bring in more merchandise to make these sales happen. If you build it, they will come type of mentality. Makes sense, right? We are ecstatic to see the increases in top line sales when they actualize.
But...are other metrics suffering? Is this increase in our sales coming at the expense of other, maybe more vital, metrics?
In this instance our desire to grow sales has given us cloudy vision and we lose sight on other important foundational components of our business.
Sales grew 5%. Woo! (We think.)
Receipts increased 15%.
Average inventory grew 10%.
Repeat for 4 seasons.
Business is good! Is that so toxic?
Identifying the toxicity
Our limited interpretation of improvement has short sighted our vision for true, holistic, & sustainable improvement.
By focusing on & lusting after this one performance metric, it in turn became toxic to our business.
For each of these four seasons, we are so thrilled to see sales improvements that we turn a blind eye to other metrics. Until their sneaky toxicity festers and causes unexpected symptoms in other areas of our business.
Sneaky Toxicity #1: At the end of the fourth season of sales growth, our customers’ buying behavior has changed. They no longer visit us at the start of the season, excited to see what’s new. They wait to visit and purchase until we discount the merchandise. Inventory sits around longer and we have to pay for those invoices before the product actually sells.
Sneaky Toxicity #2: Our margins decrease. Our sales are up, but our profitability is the same (or lower).
Sneaky Toxicity #3: We spend more on labor and payroll than ever before. The increase in top line sales means that the staff is selling more (and how much are we actually sending the the bottom line profitability on those discounted sales?). But it also means that there is more stockroom receiving, organizing, re-merchandising, and cleaning than before.
Sneaky Toxicity #4: We have so much amazing merchandise! We need more room! We need to invest cash to expand! Are you sure?
Sneaky Toxicity #5: We find our bank account balances lower and lower as time continues. Our expenses haven’t changed a lot… where is our money going?
Inventory that’s sitting around and not being productive.
We have, year after year, fed our desire to grow sales. And we did! But at what expense? By focusing on and lusting after this one performance metric, it in turn became toxic to our business. That wasn't the intention at all!
Now, zoom out a level to your industry—and these practices will cause rifts throughout the global industry if many businesses are behaving similarly. And this has vast, deep, and lasting impacts on our customers buying habits and attitudes across the marketplace.
Removing the toxicity
What’s the correct approach? We need to identify and shift our ideas of what improvement and success really are.
Just like a personal relationship, deciding on a place to live, or taking a new job, each situation needs to be assessed with careful and balanced consideration. Each component has to be weighed against the others to come to the ultimate decision of which option is best for us. What are the positives? What are the negatives? Where are we the most balanced? Where are we the happiest?
Remember— if true, holistic, & sustainable, improvement is the goal, then we should be asking questions, gathering information, and making decisions based on facts & data.
Maybe a 0% increase in top line sales is okay—especially if our other performance metrics are improving! We are working smarter not harder.
Do you need guidance with moving the right metrics in the right direction? Send an email to firstname.lastname@example.org to learn more.