Small, inconvenient problems can add up. Store owners who were “just fine” yesterday, may end up being frog soup tomorrow.
Retail Topics by Ken Guerrero
Many times store owners, when asked how things are going in their organizations, will respond by saying that things are “just fine.”
Whenever I hear that things are “just fine,” it reminds me of Frog Soup; a good story about “sense of urgency.” It goes like this: put on a pot of water to boil, and once it is boiling, drop a frog in it. End result: the frog jumps out. Put the frog in the pot of water first and turn on the heat. End result: the frog just sits there as the temperature increases degree by degree until the end. Some storeowners are just like frogs.
I recently spoke to a store owner who explained that things were “just fine.”
Probing a bit deeper, I asked him to describe his biggest current challenge and found out that he was closing one of his stores.
Obviously things were not “just fine.” Failure is not an isolated event. It is the culmination of a series of little events that happen over time. One little thing goes wrong, but it is so small the owner disregards it for now, and instead focuses his attention on bigger fires.
He said that the reason his store was doing so poorly that it needed to be closed, was that it was too far from his main store. He further explained that when he couldn’t be there, the staff sat around surfing the Internet.
Probably what really happened was that the owner got complacent. Complacency is one of the main reasons behind the downfall of empires, businesses, people and frogs.
Complacency is surrender by degree. This means accepting the unacceptable a little at a time. Most retailers have experienced this. You are complacent if you keep marginal salespeople on the sales floor because keeping them is less hassle than recruiting new and stronger salespeople. You are complacent if you don’t say anything to a driver who consistently gets back to the warehouse one to two hours late in the evening, because at least he shows up on time in the morning. And if you write off missing inventory because it is easier than trying to find it or find out what really happened to the items... well, you get the idea. If you are a complacent manager, then you are very much like the frog who sits in a pot of water while the temperature slowly rises.
LIKE FROGS IN A POND
Home furnishings retail businesses are complex systems made up of a combination of sub-systems and processes. All complex systems are inherently unstable to a degree.
The trouble is that when one thing changes, everything changes. Expanding the frog metaphor described above, we might compare any change in a furniture store operation to be like a rock dropped into a frog pond. The underlying business model (in this case the water) remains the same, but waves that result from the rock being tossed into the pond radiate out and unsettle other areas of the business that are like frogs floating on the surface. If several rocks are dropped into the pond, then you get frogs bobbing up and down in an uncoordinated fashion... inhibiting their ability to catch flies. Likewise, anything that increases instability in your business, causes it to operate at less than optimal efficiency.
In the furniture store closing example mentioned above, it is possible that the inconvenience of running back and forth between two stores, was just the first rock dropped into the owner’s frog pond.
Failure takes place over time as ripples caused by minor problems upset other processes. Sometimes the processes return to stability and sometimes they don’t. If they don’t return to stability, they too become rocks dropping into the frog pond causing more ripples and accelerating the wobbles of instability until sub-systems begin to fail.
ANOTHER ROCK DROPS
Lets say that a store schedules deliveries and then generates automated messages that inform customers of the schedule. The message asks customers to call-back if the dates and times are not convenient. This common practice is like a big rock dropped into a pond. If, on any given day, two deliveries are unsuccessful because customers are not at home, a series of events result. Assume that the average cost of failed delivery is $200 per item (a ripple in the pond) and that in this store the average delivery is three pieces. That’s $600 a day profit erosion. Failed deliveries cost this store a minimum of $120,000 a year (a sub- system wobble). This situation is bad enough, but worse yet, it is likely to go unmeasured and undetected by top management because it does not appear as a line item on the company’s Profit and Loss statement.
Looking deeper at the cascading effect of missed deliveries in this example will show that three out of ten pieces that come back into the warehouse have some handling damage. That’s because furniture from the missed deliveries must be repeatedly moved around, loaded and unloaded. What does this cost? A second rock drops into the pond.
Another result is that two out of ten sales cancel their orders because customers are upset by delays caused by the damage. What does this cost? A third rock drops into the pond.
Warehouse racks start filling up with merchandise that is damaged or fails to get back into the computer system and sits there until the next warehouse sale. A fourth rock drops into the pond.
Then there is the collateral damage as the ripples move into the rest of the business and the frogs start to bob up and down. What happens to the morale of the salesperson that is told his sale canceled because of a failed delivery? What does this cost? A fifth rock drops.
What happens to this company’s advertising budget when unhappy customers tell everyone they know how unhappy they are with your store? What does this cost? A sixth rock drops and the pond looks like a pot of boiling water.
When enough sub-systems fail, the whole system then fails. So how might the store owner jump out of the pot before the water boils?
Love Your People!
Employees who are under-trained, incompetent or have attitude problems are most likely to be the people that throw rocks into your pond. Losing a good employee will generate “ripples” that can cause systems to wobble throughout your organization. It is, therefore, important to train, nurture and retain good people.
Turnover: One of the most expensive line items not shown on the balance sheet is “TURNOVER EXPENSES.” Research tells us it costs three times the annual salary of a position to replace an employee.
The number-one reason most people leave a company is that they see no future for themselves. The best way to stem the exodus is to invest in training. Grow your future managers through education. Employees look at training as a benefit that serves both the employee and the company.
Termination: Most furniture store employees are terminated due to their inability to perform at satisfactory levels. It is important to get rid of non-performers who have been given every chance to build skills and competence. As noted above, you don’t want to be the frog that just sits there as the temperature increases degree by degree. The fact is, most furniture stores don’t give their employees a fighting chance to improve because they don’t invest in training. Very few retail furniture stores have a training room, and even fewer have a line item in their budget for training.
Attract Better Employees: The skilled labor pool is shrinking and storeowners need to do their part to make retail furniture an attractive career choice. The creation of formal training programs is going to be one of the best ways to get tomorrow's’ employees to join our industry.
Every store needs to be proactive on this issue because the retail furniture industry is not the first choice for the best and brightest students graduating from college. It is not even the first choice of the best and brightest graduating from high school. It is interesting to note that classified ad response is greater from blind ads that don’t mention that the position is for a furniture store.
Love Your Customers: Your customers can tell if you don’t love them. Unloved people will throw rocks into your pond, raising costs and roiling your employees.
Consider that the cost of making a sale to a new customer is seven dollars for every dollar spent making a sale to an existing customer. Customers, on average, are back in the market every eighteen months.
If you don’t stay in touch with them, they will probably start their shopping at another store. Use some of your seven-to-one cost advantage to love your customers to the point they feel it and love you in return.
Count Traffic: Install an electronic door counter. Learn the traffic patterns in your store. Use traffic counts to gauge the effectiveness of your advertising and marketing efforts. If you doubt the usefulness of your current advertising, try skipping two weeks of ads and check for changes in your traffic pattern. Then try experimenting with your media mix and measure the effect.
Know Your High Value Customers: Take time to get to know your customers. Use data mining software to identify your high value customers and your frequent buyers, and create marketing strategies to target them specifically.
Make Your Unhappy Customers Happy: Take time to learn who your customer service cases are, and what they are saying in the community. A quick internet search should yield lots of eye-opening information.
Check periodically for incorrect and slanderous web postings about you and your company. Get personally involved in making unhappy customers happy. This will serve two functions. It will minimize the negative advertising campaigns they are waging and create store champions.
Become a Time Master!
Even the best employees and store managers are groaning under their huge work loads. Overworked people don’t exactly throw rocks into your pond but accidentally let the rocks slip and fall. Today’s business executives are doing more than ever before. Task overload is common. Task overload is the reason why many owners and managers “manage by crisis;” jumping from one fire to the next.
The best business executives are those that can multitask effectively. A lot of people out there multitask, but not many do it effectively. Multitasking is all about the wise expenditure of time, because time is the most expensive resource at your disposal. It is the one asset you cannot buy more of.
Being a time master means focusing your attention on the things you should be focused on, and delegating things that other store employees should be doing or could be doing better than you. This is where learning to “manage by exception” comes in handy.
Like most skills, this is one that can be learned. Most Fortune 500 companies send their top managers to some form of executive training that includes time management training. How long has it been since you attended some form of owners training program? Also, check out the article in the August/September 2006 issue of FURNITURE WORLD on time management (posted to the article archives on www.furninfo.com).
Sharpen Your Focus!
Don’t focus your attention on all the things that went right yesterday; focus it on the things that went wrong. The best lesson learned are those learned from mistakes.
By focusing on problems, you will learn how to reduce their re-occurrences and impact. Anytime you can do this, the results of your efforts will go right to the bottom line.
Each of yesterday’s problems is a rock waiting to be thrown into your pond today... and tomorrow. Get to the heart of each problem. Don’t allow your employees to blame someone else for their problems. For example, the warehouse manager in a store with high damage rates, blamed their Chinese supplier for the damage. Because the goods were cheap and damage occurred before cartons were opened, the owner accepted this explanation. For months the problem went unresolved because the goods were cheap enough. A quick look around the warehouse with a discerning eye eventually illuminated the cause of the problem. The warehouse had floor level doors, and when the warehouse people unloaded containers, they dropped a lot of boxes.
Loading delivery trucks caused damage as well since it involved throwing inventory into the box.
Building a moveable steel ramp cost $600 and the drop in receiving and delivery damages added a five-figure number to this store’s bottom line.
Grow stronger!
A lot of retailers have joined performance groups and that is a good thing. Once you are sure that you are on par with your peers, the next step is to rebuild your business for the future by exploiting next-generation strategies in technology, process, and people management. You can’t do that by networking with peers, you need to look outside the “retail furniture store box” for inspiration.
In addition to joining a group of non-competing furniture retailers, consider joining a group of non-competing retailers from other verticals. Benchmark your store against a store in a stronger retail vertical such as luxury autos, life insurance, or jewelry. Only by networking with stronger players in different verticals will you be able to learn the kind of lessons that will give you a competitive advantage.
One of the biggest challenges retail store owners have is learning to view their business as a collection of complex systems striving for stability. Most owners still think of their operation as family businesses, and that creates some bad habits. To break those habits, it is helpful to go through a formal long-term strategy development process that adequately addresses the reality of complex business operations.
This is something that Fortune 5,000 companies do on an annual basis.
Retailers who do these things will be the ones to grow strong and thrive in the current business climate and in the future. Those who don’t are going to sit in the pot until the water boils.
Recipe for Frog Soup
- Don’t train your employees.
- Don’t develop an active recruiting program.
- Don’t measure the performance of all your employees.
- Don’t use an electronic door counter to track traffic.
- Don’t measure the effectiveness of your advertising.
- Don’t identify or maintain contact with your best
customers.
- Don’t use your time wisely.
- Don’t improve your business by thinking outside the retail furniture box.
- Continue to do what you have always done without regard to the changes taking place at every level of the global/local business environment.
- Wait for the water to boil!
Ken Guerrero is a Consultant providing strategic and tactical consulting to help storeowners take their retail game to the next level. He has worked with many furniture stores and performed process analysis and process design for a number of Fortune 5,000 companies.
In addition to his operational consulting activities Ken has created a new sales training program called Buyology 101 which focuses on teaching salespeople how to diagnosis a customer’s buying process. Once the buying process is understood, the salesperson can adapt his/her style to support the customer’s buying needs.
For more information about operational analysis, strategy development, sales, warehouse or customer service training programs contact ken at keng@furninfo.com.