Retail Sales up 7.2% from Last Year, But Is Anyone Making Money?
The National Retail Federation announced holiday sales are up 7.2% from last year. While these numbers are encouraging, here’s the real question: “Is Anyone Making Money?”
As the dark cloud of Recession looms over the economy, retailers are showing their desperation as they drastically slash prices to compete for consumer dollars. The end result is a pricing war that will prove fatal for many businesses already on the verge of bankruptcy. After all, retailers can’t survive on sales alone. They need profits to pay the bills. With these dramatic price reductions, retailers are practically paying people to take the inventory off their hands. Small businesses are especially vulnerable to this trap as they feel the pressure to compete with large retailers. Resist the urge to cut into profits and instead try these recession-busting strategies:
Un-Bundle the Package
Customers may still want your product/service, but they just can’t afford all the add-ons right now. Break down your “total package” into bite-size, more affordable pieces that will allow customers to buy only what they can afford. For example, forget the $3 “Happy Meal” just sell the hamburger, fries, and drink for $1 each.
Offer a New Product
Instead of slashing prices on your best-sellers, offer a new product that has higher margins for you, but is at a lower cost to the buyer. For example, if you sell $500 HD stereo systems at a 50% profit, maybe add a $50 HD headphone that sells at a 75% profit.
Change Your Pricing Policy
While the yearly subscription price of $959 seemed like a complete bargain two years ago, it’s sending cash-strapped customers running for the exits today. Instead, try switching to a monthly pricing plan of only $79.99 to lessen the sticker shock.
Protect Your Brand
If you do happen to have some room to cut prices without cutting into profits, do so carefully. Turning your site into a sale rack could leave customers wondering why they were paying higher prices in the first place and then leave them resistant to price increases in the future. Consider doing the cost-cutting elsewhere like a sister-site, a deal-of-the day website, or even contacting a closeout firm. For example, Zappos.com limits sales on their website and moves their clearance items to their sister-site 6pm.com.
The bottom-line is that Recessions are tough and it’s hard to not get a little desperate at times. However, don’t fall victim to short-term solutions that will only cause you long-term problems.
I’d love to hear your thoughts! Please comment below or email heather@glamajama.com
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December 3rd, 2008 at 9:58 am
Great points Heather! I recently wrote a post about discounting and how it destroys profits at http://bobphibbs.wordpress.com/2008/11/22/discounting-short-selling-bankrupt/. It’s no mystery businesses go under but they don’t have to - anyone can discount - it’s employees selling the merch - not stacking it -that matters in this economy - as always.
December 3rd, 2008 at 12:33 pm
[...] Retail Sales up 7.2% from Last Year, But Is Anyone Making Money? [...]
December 4th, 2008 at 12:20 am
Heather,
I just read about it the other day and I am glad you mentioned zappos’ strategy to unload their inventory via 6pm. It has definitely been saving them a lot.
December 8th, 2008 at 3:33 pm
I think you are so right about protecting a businesses brand. I run a website development company, and I think it’s a big mistake to clutter up your website. The main website should tell your potential customers about what you have to offer and what your company is about. I think blogs are great for extra info you want to provide your customers, and a great place to advertise as well. Thanks for the tips.
http://www.datexmedia.wordpress.com
December 8th, 2008 at 4:26 pm
Great comments everyone-thanks for pitching in!
December 18th, 2008 at 3:43 pm
Here is something for you to chew on-Subway sales were their highest ever in 2008 despite the recession and uncertainties of 2008. They did not just go up 2,3 or 5%.They went up anywhere from 20-50% because of their $5 specials
And 2009 promises to be even better as they put Michael Phelps on their Ads with a 3 tier pricing for subs-$5,$6,$7.
mrfranchiseman.com
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