Taking stock of retail Featured

8:00pm EDT May 26, 2009

Our current economic climate has hit the retail industry hard. To survive, companies must double down on what they do well.

“Whatever your niche market is, whether it is providing a different type of merchandise, offering a unique experience or treating customers right, you need to focus on serving that niche,” says Peter E. Metzloff, CPA, a partner at Skoda Minotti.

Focusing on and making sure you deliver to your niche is particularly important these days, when everyone is concerned and cutting back on things that are somewhat discretionary, adds Metzloff.

Smart Business spoke with Metzloff about the lessons your company can learn from the retail industry.

What are some of the challenges that retailers face and how can they deal with them?

One thing that is always a concern is inventory loss. Companies can hardly stay in existence if they don’t have ways to deal with inventory loss, not only from shoplifting, but also from employee theft. Half of the losses that occur are not from customer theft, but from employee theft.

To combat this, you have to have daily reports to look at sales, along with inventory spot checks to determine that things are balancing out and that shrinkage isn’t occurring. Employees in the retail industry tend to have a lot of turnover, so you have to be quick. It’s a sad commentary, but if some employees see that they might be able to get away with something, then they probably will.

How can companies prevent employee theft from occurring?

First, they have to make sure no one steals cash receipts. Once in a while, a company gets lax and falls behind in balancing out store receipts. In this day and age, a lot of transactions are made with credit cards, but you always have some cash on hand. That has to be balanced out the very next day. Retail stores tend to have ways of producing operating reports on a daily basis. If you are doing that properly, you can spot adverse trends from one store to another pretty quickly.

The good news is that turnover for employees in the retail industry is a lot lower now because of the difficulty of finding new jobs in this economy. If employers have lower turnover, then they don’t have to spend so much time and effort on employee training. That corresponds to instilling customer confidence and client service. The really successful retailers are the ones whose employees demonstrate that they’re really glad to have a customer in the store.

How have advances in technology changed the retail industry?

You can’t do your inventory management the old-fashioned way of just walking around. You have to have back-office computerized systems that track all of that for you. Also, many retailers are supplementing their physical locations with some type of e-commerce. You don’t want to have a Web page that just shows your products. You want to actually have a catalog that people can click on to buy your products directly from the Internet. If you don’t, you are probably missing big opportunities these days.

Many companies spend a fair amount of money to have a high-end Web site where you can actually place orders, and more and more are establishing a central fulfillment place to deal with e-commerce. There are definitely big costs involved, but you have to spend money to create and develop a quality Web site.

In this computerized day and age, you’ve got programs that let you keep track of inventory levels. As every item gets sold out of a store, you are going to know the very next day. Then you can establish re-order quantities at the store level. So you either have that information go directly to the vendor who is going to drop ship for you, which saves you a lot of costs, or you know it in your own organization and you figure out what your replacement shipment would be. That would typically be happening at a central warehouse that you own, and that’s also the logical place to do order fulfillment for e-commerce.

How can companies streamline their processes to operate more efficiently?

One way is by being tougher with the way they negotiate some of their expenses. Employee costs are very significant. In this day and age, I’ve seen companies that have scaled back on either the number of employees they have or the number of hours a store is open. You can use computerized systems to tell you about your sales on an hour-by-hour basis. So instead of opening at 10 a.m., your research may show that it’s more cost-effective to open at 11 a.m.

Another category is advertising. Some companies are reallocating their marketing dollars. For example, rather than advertise every week in every newspaper in their area, they may be advertising online or implementing loyalty programs to get the word out a little more effectively. If you create a frequent shopper card and get customers’ e-mail addresses, you can send promotional e-mails directly to your target audience rather than implement a more costly advertising campaign directed at a mass audience.

Peter E. Metzloff, CPA, is a partner with Skoda Minotti. Reach him at (440) 449-6800 or pmetzloff@skodaminotti.com.