By Richard L. Williams, Ph.D.
Question #1: Is it possible for a manager to manage sales in a retail store?
Through out the retail industry, including manufacturers and distributors, the sales number is often the number one priority. Indeed, in many companies sales numbers are so far above any other measurement that managers live and breathe by whether sales are up, or down. If sales numbers are so important they must be manageable, right? Let’s find out.
A number of years ago two highly experienced retail store managers quit their jobs and promising careers and purchased two stores and began a career of teamwork as owner-partners, rather than employees of a large chain. For four years the partners did everything imaginable to build sales volume in both stores. During the first two years the partners frequently told friends and family, “Sales are up.” In fact, about 18 months into the venture one of the partners said, “Can you believe it, our sales are up 22 percent over last year!” Without doubt these two owner-partners had achieved the American dream. They owned their own business and were controlling their own destiny. Clearly, everyone who knew the owners was envious, wishing they had as much courage to do the same. After all, isn’t this how other successful retail business began?
The first indication of trouble was when the partners tried to sell one of their stores. When that didn’t happen, they abruptly closed it over a weekend. Their explanation was that the store had always had problems and by closing it they could focus their attention and capital resources on the one remaining store. With the problem store closed, friends and family once again heard reports of, “Sales are up.” But within a few months the second store was also closed and the owner-partners declared personal and business bankruptcy. Literally the partners lost almost everything they owned. They escaped the failed venture with one taking a job as a clerk for Home Depot, and the other selling used cars.
What happened? If sales were consistently up, how could the business not be profitable? The answer is that in retail there is no direct connection between sales and profit. Unless gross and expenses are fixed, sales and profit become independent variables. It is possible for sales to go up, for example, while profit goes down; and profit can go up, while sales go down. The reason is that there are no guarantees in retail. Other factors such as gross margin, labor, overhead, and expenses have greater impact on profit than sales alone. That’s what happened and crushed the American dream for two enterprising, former, store managers. Now do you know the answer to the question, “Can sales be managed?” Let’s use a bit of strategic thinking and drill a little deeper toward the answer.
Question #2: Is there anything a manager can do directly to sales that will make the number change? Is it only possible to impact sales by influencing other factors?
Actually, sales are a product of two factors. That means nothing can be done directly to sales to make it change. To change sales a manager must manage something else, not sales itself. Therefore, to focus primarily or excessively on an unmanageable number, at the expense of the things that can change it, could lead to failure. This explains the failure of the two storeowners.
Question #3: What are the only two factors that determine sales in a retail store? Can these two factors be managed?
It’s true that many things contribute to retail sales; things like, margin, signing, suggestive selling, pricing, displays, merchandising, stocking, store location, advertising, product availability, and many more. But all of these things can be rolled up into two factors. Do you know what they are? The accompanying illustration is the key. All of the things listed above, and many more contribute to two factors: (1) Number of Guests, and (2) Sale Per Guest. The number of guests and the amount of each transaction determines sales. Did you answer correctly?
Question #4: Can the two factors that contribute to sales, Number of Guests and Sale Per Guest, be managed?
As with the sales number, what can a manager do directly to Number of Guests or Sale Per Guest to make them change? The answer is, not much. Once again, it isn’t possible to manage these numbers either, because they are the products of other things. Although they are excellent measurements of the health of a retail store (or company), they are technically unmanageable. To focus primarily or extensively on them at the expense of the basic things that really drive sales could be a mistake.
Question #5: So what can a retail manager manage?
The answer to this question is everything that contributes, or rolls into, Number of Guests and Sale Per Guest. The basic elements are the things that can be managed, not the products of these elements. That means the most effective place to manage sales is not with sales itself, but rather in all of the fundamental elements that begin the process. These are the things that are manageable, not the product number such as sales. When a retail employee is told, “Your sales are down, you better get them up,” the employee can only make the change at the basic element level. And if the employee doesn’t have a good understanding of the process, it will be very difficult to make the change.