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Cutting Costs without Cutting Service

Industry insiders offer advice for independents weathering a tough economy.
By Alison Bour

If a pet boutique retailer says he or she hasn’t considered cutting costs lately, it’s likely a fib. Everyone watches the bottom line—no matter how the economy fairs—but how do independents that pride themselves on high-end service weather the storm without cutting the very asset that put them on the map in the first place?

A dedicated POS system can help retailers to answer buying questions, resulting in a better product mix that matches customer wants without the risk of overstocking. Courtesy of Sadie’s Pet Stop
“There’s a lot of bad news,” said Lee Hudgens, a business consultant with Alpharetta, Ga.-based Atlanta Retail Consulting, about the current plight of retailers. His wife, Charlotte, helps run a pet store in Winston-Salem.

“Within a 40-mile radius [of her store], about three or four stores have failed,” he said. “Some are struggling and some are going out.”

Bo Nelson, president of WholesalePet.com, reported that, “All in all, it seems the pet industry has not been hit too hard by the current economic conditions. But, if there is an industry segment that has felt the downturn the hardest, it’s the smaller, independent boutiques.”

The general manager of B&B Pet Stop Inc., Sally Trufant, feels the pinch. She runs B&B Pet Stop in Mobile, Ala., with two siblings, Bill and Mary.

“The economy has certainly affected our sales,” she said. “How could it not?”

Most customers usually add a toy to their dog food purchase, according to several retailers, but that happens less now at B&B.

“Pet food is the lowest margin item we sell, so not getting the higher margin on the toy affects profitability,” Trufant said.

No Bare Shelves

Most retail authorities cringe when they watch stores cutting inventory to save money. Barry Berman, founder of NexPet Retailer Co-op headquartered in New York City, is one of them.

“That should be a last resort,” Berman said. “As a consumer, it’s much less inviting to make an impulse purchase when there’s less merchandise. It’s a subconscious decision but most decisions to buy are subconscious anyway.”

Deb Wilson, director of marketing and vendor management for Animal Supply Co., located in Federal Way, Wash., agreed.

“We are encouraging our retailers to keep their inventory levels in a normal range and not be tempted to run down their inventory,” she said. “It often results in a self-fulfilling prophecy.”

These experts recommended careful study of margins instead. Berman suggested taking extra time to analyze each department separately.

Does an item’s gross margin justify its space allocation? Could expansion of high-performing product lines increase sales?

B&B used to run a buy-one-get-one-for-half-price on plush dog toys. The store changed it to a “new lower prices” offer.

“Customers may have money for one toy, especially if it’s cheaper, but they can’t justify buying two dog toys when they may be struggling to buy groceries,” Trufant said.

Sean Lidstone, owner of Sadie’s Pet Stop in Edmonton, Alberta, Canada, implemented changes to address slower sales. He said while dog lovers remain tried and true specialty food buyers, during tough times cat owners seem willing to switch to grocery store brands. So, he introduced price-competitive cat foods at Sadie’s.

Nelson currently sees certain boutique items dying while others thrive. Apparel lines, bling collars and adornments remain sluggish, but toys, treats, functional items and organics are moving faster at the moment.

Better Buying Habits

Keeping shelves well stocked during an economic slowdown may seem counterintuitive, but it is essential to conveying an upbeat message, which in turn can drive impulse sales. Courtesy of B&B Pet Stop
Trufant offered another tactic smart store owners employ when tightening expenses.

“Bill, our buyer, negotiated some better prices from our distributors,” he said. “He says we seem more important to them lately.”

Nelson noted that stores that survive and even grow during tough economic climates adjust wholesale buying habits.

“A retailer may order a one-month supply of a certain item, whereas before they would order a three-month supply,” he said.

However, Nelson offered a warning about taking the strategy too far.

“Retailers must be aware they could pay a higher percentage in freight cost or miss out on volume discounts,” he said.

Wilson reported that Animal Supply focuses on educating stores about operation, category management and finding new market opportunities, as well as passing through manufacturer promotions.

“You can’t rely on the guess method,” Lidstone said.

 In 2007, he invested in POS technology that answers buying questions for him.

“We can maintain minimums without much effort and identify slow-movers faster,” he added.

The system helps Lidstone take advantage of buying certain items in bulk at shows.

“We get our ordering down to three or four times a year, except for weekly perishables,” he said.

The tactic also keeps employees on the floor during busy times, such as holidays, rather than expending staff resources unpacking daily shipments of sold-out items.

Hudgens said investment in technology is one of the best decisions stores make, even boutique establishments. He’s seen plenty of retailers that operate out of a “shoebox” regret, passing on POS systems when times were good.

Don’t Stop Advertising

As with the temptation to let store shelves get bare, industry insiders have witnessed boutique stores cutting advertising to make up for slow sales. Some stores consider advertising a luxury for good times, but both Hudgens and Berman disagreed. In fact, advertising could be more crucial than ever, they emphasized, as long as choices make solid sense.

Trufant disliked cutting sponsorship of a yearly baseball game where fans arrived with dogs in tow or found a new companion to adopt.
“This year, we decided it was not something we could swing,” she said. “The bang for the buck just wasn’t there.”

B&B cut its yearly tradition of designing and printing a new T-shirt for staff uniforms, too. However, the store management decided to retain TV ads on cable channels since that investment pays, but cut other programming ads.

Recently, Trufant stumbled on a goldmine in social media: Facebook, texting, Tweeting; she does it all. While not yet fully tested, the new medium is a fun avenue for customers that is easy on the store’s ad budget.

“I update the status of any little thing that goes on,” Trufant said. “I announce new shipments, adoption events, sales, rabies clinics.”

Social media naysayers should consider Truant’s numbers.

“I personally have about 600 friends on Facebook, and the store has about 500,” she said.

Cutting costs, Maintaining customers: Tips and Tricks

  • Consider reducing or eliminating frequent buyer discounts, especially those focused on low-performers such as food, and the same goes for loss-leaders.
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  • Watch the temptation to let employees go as customers might rely on relationships with them. Find ways to reallocate their time and focus if possible. Additionally, consider the economic slowdown a time to find qualified employees facing layoffs and hungry for jobs.
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  • Analyze advertising return on investment (ROI). Some events might be fun but expensive. TV, print and radio, used the wrong way, offers little exposure for the price.
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  • Investigate social media. If you use texting, separate it by department so customers don’t get bombarded about products they don’t buy.
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  • Discover new ways to gain a reputation as an educator. Offer in-store seminars and other similar events. <HOME>

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Cutting Costs without Cutting Service

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