Because you cannot achieve the required sales increase to generate the same amount of Gross Profit as you were before you cut the price.
However, if the store can improve the number of add-on sales, you can get ahead. How do we make add-on sales?
IT PAYS TO ASK THE RIGHT QUESTION
In this industry we do it by simply asking the consumer or tradie for it. This is a function of having pretty good product knowledge, not so much in the technical details of a product, but which products go with what and which are required to complete the job.
Given that most of your staff would understand product association, how can we get them to ask the question?
Some large organisations train their staff in product association and some may use other means to get the staff to ask the question like using mystery or phantom shoppers to check that the correct questions are being asked to generate the add-on sale. The problem in using phantom shoppers in a hardware store is that they can be random.
I believe the real reason why staff don’t ask the right questions here is that they are not motivated to do so. For some salespeople, particularly in the electrical and fashion retail sectors, remuneration is based on the $ Gross Profit they generate. They are not being paid for simply turning up at the store each day.
There are many research studies about what motivates retail staff into increasing their performance and thus the profitability of the store. Money and financial remuneration are obviously high up there so, if you can design a profit incentive scheme that rewards staff financially for asking the add-on sale question, you may be on to a winner.
USING GP AS THE FOCUS
One scheme I suggest is to use $ Gross Profit generated as the focal point of a profit sharing scheme. To make a scheme work you should set realistic Gross Profit targets. And the rewards should be paid out more than once a year as staff will become highly focused the month or two before payment.
Unlike some operators in this industry, I would not suggest a profit sharing scheme based on how much a person sells. Any staff member can sell say cement below cost. This will substantially increase turnover and also the reward the sales person but will also probably destroy your profits.
By basing the incentive scheme around $ Gross Profit, you will not only increase your staff’s focus on making add-on sales, but can also benefit other areas of the store.
For example, ensuring that all stock is booked out, you only pay for what you receive and customers, who could steal, don’t, because of vigilant staff. Also, through better housekeeping and merchandising, putting the right product in the right spot, the customer sees it and picks it up.
Any profit sharing scheme must be a win-win situation for all participants, management, staff and ultimately the shareholders.
If you need any further information in how to set targets, when to report and to pay out and how to ensure that all staff are treated fairly, please contact me at the web site address www.petermcox.com
Peter Cox is a senior consultant for Macquarie Advisory Partnership based in Sydney. He has over a decade of experience training and consulting in the retail hardware industry. He conducts key-note addresses, and management and sales workshops, which are aimed at improving profitability and liquidity in one of Australasia’s most competitive retail environments. Phone 0061 438 712 200 or visit www.petermcox.com.au