Strategic Exchange - April 2008

By Gary Cissell

I love rollercoasters! I love the twisting turns, the sudden drops, and the adrenaline rush. But the economic rollercoaster we have been on for the past year—that’s a different story. I do not look forward to the constant ups and downs. I hate the unexpected hairpin turns. And most of all I loathe the uncertainty that economic downturns breed.

The “R” Word
Whether you agree or not that we are officially in a recession, most of us can agree that most of the problem areas affecting the U.S. economy stem from the housing industry. Housing seems to be the root cause of problems in the financial markets, both here and abroad. A hot housing market, fueled by eager lenders pushing the limits on traditional lending practices to gain business, provided all the fuel necessary to eventually send our housing and housing-related product categories into a deep spiral.

Added to all this chaos in the financial markets is a war in which we are spending billions of dollars, inflationary pressures (oil at $110/barrel) and record drops in consumer confidence. No wonder it seems like we’re on a rollercoaster that seems to be coming off its rails.

The Silver Lining
During difficult economic times, admitting sure defeat and just retreating to minimize your losses can seem like a pretty good idea. As a substantial number of retailers show signs of moving in this direction, I say there should be no retreat, but rather a deliberate and aggressive assault designed to change expected outcomes. Now is a time of opportunity to focus on those things that could separate us from the pack. Good retailers will strategically find ways to re-invent themselves, to rally their troops, to drive customers into their stores and, ultimately, to gain marketshare. Because if you can capture marketshare as business turns downward, you will be in a great position to grow your business when the economy turns around. While everyone else spends time and money ramping up after their retreat, you’ll have a head start.

It’s Only A Cycle
Throughout the economic history of the U.S. we have experienced many economic ups and downs, and what we fail to remember we are doomed to repeat. Looking back at how you handled previous economic cycles can be a good place to start when you’re retrenching for another battle. Lean times force us to adapt our current business practices to survive and thrive in a more challenging business environment. Applying those lessons now helps ensure that when the economy does rebound, we retailers are properly armed to continue to grow and prosper.

It’s also good to remember that despite all the doom and gloom, the U.S. economy is still a $13 trillion economic locomotive. Even if that locomotive is running at 90%, it still tips the scales at slightly better than $11.5 trillion. That still seems like a lot of business to me. Today is a great day to go out and get your share of it.

The Power of 3
With my own business, I have stepped back and re-examined several operating principles that have served me well in both prosperous and lean times. I refer to them as the Power of 3 for driving traffic into my business. These three very simple, but pragmatic, principles are Advertising, Merchandising and the Customer Shopping Experience.

For each of these principles, you need to apply the following process. First, you must always make expense control a priority—even during good times. Plan your expenses carefully and thoroughly. When you have to make cuts, make them strategically rather than generically across all categories. Focus on allocating resources where you’ll have the greatest return. Second, plan, plan, plan and implement. Paying attention to the smallest of details will yield the biggest dividends when you finally implement your plans. Third, communicate your plans with the care and attention of a general commanding the 82nd Airborne. Everyone in your entire operation must be in the loop, aware of the unifying goals of your business. When you plan your moves, get feedback from all levels of your operation—warehouse, sales, service staff, etc. Take this feedback and weave it carefully into the plan, and then communicate.

Innovation
A downturn in the economy provides excellent opportunities for innovation, and innovation can be applied to all principles in the Power of 3. This downturn, like every other downturn in history, will end. When it does, successful retailers will already have their company in a position to capitalize on their competitor’s lack of action. “Profit Impact of Marketing Strategy,” a British study of 1,000 businesses, concluded that “companies that spent more on innovation during the downturn saw return on capital employed rise 23.8% during the recovery, compared with 0.6% for those that slashed spending.” A downturn can actually allow a company to break away from its competition. During prosperity, money flows freely and prompts greater risk taking. Businesses are forced to change and innovate just to keep up with the ever changing business conditions. During a recession, the little players tend to go by the wayside. Many long-standing businesses pull back their investments in innovation to cut costs. This is exactly why now is the best time to exercise your strategic innovations and stand out in the marketplace. 

In his book, “The Big MOO,” Seth Godin points out that while the world has changed, many organizations haven’t kept up. They continue to apply old solutions to the changing dynamics in business and then wonder why those solutions no longer work. In “The Purple Cow,” Godin maintains that retailers need to figure out a way to stand apart from the herd. In other words, it may not be as important to focus on being perfect as it is to focus on being remarkable in the eye of our customer.

Advertising
The first principle in the Power of 3 is advertising. Advertising begins the process of driving customers into our stores. To be most effective, it must be perfectly aligned with the other two key principles—merchandising and customer experience. 

Adage.com states that as our economy falters, several key and very prominent consumer product marketers have opted to increase advertising budgets, while reining in costs elsewhere. Procter & Gamble, Kellogg’s, Kraft and Energizer Holdings, to name a few, are major marketers that have increased spending in order to hold back the threats from private label manufacturers. Their goals are to safeguard their brand and to maintain consumer equity until the economy picks up again. 

Our competition in flooring retail isn’t just other flooring stores—it’s the high def big screen TVs, new spring fashions, fancy new appliances, even groceries and gas. You’ve got to be innovative to cut through the clutter and compete. 

I’ve adjusted my promotional strategy to combine the benefits of three advertising vehicles:

•single-sheet flyers inserted in the newspaper with limited-time flooring offers that give customers a real reason to shop now versus later

•pages within our larger all-store circulars that showcase the all-in-one-store and low cost leader messages that today’s more budget-conscious customers are looking for;

•TV spots that highlight our key points of differentiation in a way that triggers the core human motivations we know drive our customer’s decision-making process.

We understand that people make decisions emotionally and then backfill with facts to rationalize their decisions, so it’s important to address the emotional triggers that make people want a new floor. TV is the perfect medium to get that kind of message across.

Each of these vehicles has its own inherent strengths and weaknesses, but combined, they are a powerful weapon to have in your arsenal as you compete for the available consumer dollars. When combined with offers that even regular guys on the street recognize as obvious values, the result is generally successful.

Anyone who knows me, knows that my offers sometimes border on crazy. I’ve had many people tell me they think that advertising and selling product below cost is just crazy. But I think if the offer drives traffic and we are able to trade a good number of customers up, then why not make that offer?

One of my favorite quotes from the “The Big MOO” states that “remarkable is knowing that a risky idea might fail, but a boring idea will definitely fail.” So don’t hold back. Think about your offers in different ways. Throw some ideas against the proverbial advertising wall and hope for a few to stick. Don’t worry if every idea isn’t a home run. Sometimes it’s more effective to put together a string of doubles that you can get to market quickly, while you continue to work out the logistics for that big homerun. The important thing is to take risks. Failure will come, so embrace it, adapt and try again.

Merchandising
Mike Osorio of the Osorio Group—and a RetailWire Brain Trust panelist—indicates that during slow times, strengthening your brand is a key element for weathering the storm. Once you have established the key messages that support your core brand and you’re communicating them to customers through the media, those messages must be mirrored on your sales floor in the form of your merchandising.

Make sure your messages are clearly defined, strategically driven and properly implemented so the advantages gained through remarkable advertising are carried through to the sales floor. Apply innovation to merchandising. Find new ways to use displays, signs, presentation and cleanliness to communicate to the customer in different ways.

Displays that make it easy for a customer to understand color, style and price seem to get noticed. Have you ever tried to shop for ceramic tile amid five or six different suppliers’ racks? Try it. It is darn near impossible unless you have the assistance of a fully trained salesperson who specializes in tile. Then, in most cases, it is the salesperson driving the sale. Why not change the way your display will appeal to the customer’s senses with a more intuitive approach to helping customers compare various colors, styles and designs? The display should make it easy for your sales team and your customers to understand your key messages and how they apply to them.

When you first step through the door of your store, what do you see? Does your merchandise scream “Look at me! I’m special! You’re crazy not to buy me now!” or does it just look like a sea of beige? The customer should be able, upon first entering your store, to notice that something is different and it’s remarkable. Is there signage that tells the customer the advantages of purchasing from you versus your competition? While we’re always striving to improve our execution, I can assure you that our customer sees our sale theme on multiple signs immediately upon entering the store. They also see signs that tell them we have financing, the length of financing, where the sales items are located, and that we will install their purchase for them. Generally speaking, our signage begins slightly above eye level and funnels the customer through the store down to the display and eventually the product level. At each step along the way we communicate some aspect of our advertising, as well as subtle buying signals.

The Shopping Experience
Recent studies have indicated that up to 53% of retail customers will bail on the brand they shopped for because of a poor shopping experience. Your employees, and especially your salespeople, determine, in large part, whether a customer enjoys the experience or not. Our job is to set the tone, the direction and the positive momentum for that whole team.

Your sales meeting can play a major role and it gives you a chance to rally the troops! A sales meeting should be an uplifting experience. It should have the sole purpose of informing, motivating, and providing the right tools to be successful. With the right direction, skillfully crafted sales meetings can provide the staff with tools that allow the sales person to successfully interpret the customer’s needs, provide relevant and memorable product demonstrations, create urgency, overcome objections and ask for the sales every time.

The sales person is your greatest asset. A well trained, prepared and informed sales person is a mighty weapon on your retail assault.

Make sure your staff is equipped to help maximize the shopping experience for every customer that you get to walk through your doors. During times like these when traffic is thinner than we’d like it to be, it’s critical that you’re taking action to give yourself a better than average chance for landing the sale and gaining marketshare. Make it a priority to ensure your sales staff understands your current advertising, participates in the merchandising, is properly trained and is motivated to take care of every customer. 

Go Out on the Edge
I love rollercoasters and I haven’t met one yet that’s gotten the best of me. This wild economic ride isn’t going to get the best of me either. Now is a great time to challenge your fears and take some risks, to go out on the edge and try some crazy new ways to approach your advertising, merchandising and sales team training and motivation. Sure, some of your experiments will fail, but some will be winners. By focusing on innovation now, you’ll position yourself to stand out from the crowd, to capitalize on your competitor’s lack of action and to improve your odds for success now and when that rollercoaster hits the peak again.

Copyright 2008 Floor Focus