Copyright (c) 2012 Ted Hurlbut
Your the best chance to convert your inventory backlogs into precious cash.
For many small, independent retailers, January has gone from a difficult month to a frightening month. Coming off of an extremely weak holiday selling season, which has left them behind the cash eight-ball, and with headlines of doom and gloom raging like a storm above them, they now find themselves staring at a sea of clearance merchandise with few customers coming through the doors, regardless of the discounts being offered.
What to do to clear this inventory out, and generate much needed cash, before it backs all the way up into the spring?
As urgent as the moment has become, there's also a real fear of putting the whole store on sale for 75% or 80% off, (and nobody's even sure at this point if that would drive more traffic through the door) and doing serious harm to the very integrity of the store itself. How will we ever get them to pay full price again???
Successful small retailers have long known that the very best marketing was the personal referrals and recommendations that their best customers gave to their friends. These retailers have historically gone to great lengths to foster and nurture these customers, because they were the route to the next tier of customers. They have done this not with price promotions, but with trunk shows, private viewings, and other special events. They have attempted to extend the warm, gracious and engaging atmosphere of these events to their sales floors in general, trying to create a comfortable and inviting shopping experience. Long before there ever were loyalty programs, this was their intuitive approach to building enduring first-name relationships with their best customers.
I've been working with several clients on leveraging these relationships to clear out the backlog of seasonal inventory while protecting the long term equity of the store itself. Without question, it's a tough balancing act. Still, what we've come up with is worth considering if you find yourself in this situation as well.
Rather than going to 75% or 80% off, as you might need to do if you took a straight clearance approach, or adopt a BOGO structure that leaves you essentially with a similar level of discounting, here's how we've approached it.
First, we've started by leaving discounts where they've historically been for second markdowns, usually at 50% off. Then we've built a customer referral program on top of those discounts. Working from the existing customer email lists, we've sent out emails offering these customers a gift certificate if they bring the email and a friend not on our email list, and that friend spends at least a given amount and gives us her email address. Then, we offer the same opportunity to the new customer, a gift certificate if she brings in another friend, who spends at least the given amount and gives us her email address.
We've been working with a two to one ratio between the minimum amount that has to be spent and the value of the gift certificate. For example, if the minimum amount that had to be spent was set at $100, then the gift certificate would be $50.
This works for my clients for a number of reasons. First, we're giving their best customers an incentive to come in and see what's on sale. In an environment of weak traffic counts, these are the customers who are predisposed to come back in. These are the customers who are typically the easiest to convert, and have the highest average transaction and units per transaction.
Second, the friend is probably going to spend more than the minimum amount, and the current customer will likely make a purchase as well, whether she uses the gift certificate at that time or not. So, we're going to move through those clearance units, and probably at a cumulative discount of less than 75%.
Third, we're adding new names to the email list. These are the customers we want to pursue over the coming months, to welcome and embrace. Whether business remains difficult, or the spring starts to show a rebound, these new customers are needed to expand the base the business is built on.
Finally, we're avoiding any banners or signs screaming "75% OFF". Yes, we're using price to incentivize our best customers, but in a way that's more subtle and also sends the message that they're special and important, as they truly are. It gives us our best chance to minimize any long term damage to our price integrity.
In this time, when it's tough to get foot traffic into your store, and tougher still to get them to open their wallets, turning to your best customers gives you the best chance to convert your inventory backlogs into precious cash. It's also the least expensive way, from both a marketing and a markdown perspective. You've spent a lot of years developing your relationships with these loyal customers. Now is the time to turn to them.
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Ted Hurlbut is a retail consultant, coach and speaker who helps independent retailers increase sales, profitability and cash flow by leveraging his deep expertise and proven retail know-how, Get his FREE report "The 16 Essential Elements of a WINNING Independent Retail Strategy" Visit: http://www.hurlbutassociates.com/get-the-16-essential-elements-of-a-winning-independent-retail-strategy/
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