by In some ways Covid was a gift to home furnishings retailers, says Taylor Ganz, senior vice president at Profitability Consulting Group and former owner and CEO of a Top 100 retail chain. The supply disruptions, the price increases and the heated consumer demand all conspired to do something retailers couldn’t seem to do on their own — raise prices and, in the process, raise their profit margins in many cases. They found consumers weren’t so price sensitive after all, at least not while they were flush with cash without as many ways as usual to spend it. But now, with inventory backing up and consumer demand easing, some stores, concerned with recent trends, seem intent on throwing away the hard-earned win after just a few months.
“Gross margin minus operating expenses equals profit or loss,” Ganz tells Home News Now. “Our expenses are increasing on a daily basis, and there’s not a whole lot you can do about it in the short run other than cut advertising, which in most cases is a huge mistake.” Discounting is also a mistake, he adds, except for very brief promotional periods, because as operating expenses go up, discounting means margins go down. The outcome is never good. In the blog below, Ganz further spells out the reasons why now isn’t the time to start discounting and what to consider instead. It first appeared on Profitabilty Consulting’s website and is re-published here with permission.
By Taylor Ganz
If you are like many retailers right now, your warehouse spaces are probably bursting at the seams. Even if you are not over-inventoried “on paper,” deferred or delayed orders are arriving just as consumer demand starts to slow down, and you have nowhere to put it. Does this scenario sound familiar?
What can you do? The one thing you should NOT do is start widespread discounting to move product or your margins will collapse. And NEVER discount best sellers. We have never understood why people do that.
These past two years have been particularly challenging for the home furnishings industry. Retailers have worked too hard during the last two years to finally raise margins to where they always should have been, and where they need to be.
When you’re planning your next promotion, avoid huge storewide discounts unless you’re just doing it for a one-to-three-day period. A more profitable way to proceed is to highlight “Huge Savings in Every Department” rather than providing savings on every single item in the store.
If you need to highlight savings on a particular line, contact the vendor. It’s worth the time to contact the vendor to see if they will participate, whether it be through cost rebates or co-op reimbursement. And don’t forget spiffs! Profitability Consulting Group has always been a big proponent of spiffs to help move product in your store.
As business eases, margins will be the key to profitability and guess what? They always have been!
