5 Tips Specialty Retailers Should Use When Choosing Products
Small retail business owners cope with an ongoing challenge: to select the right mix of products to sell to their customers. The task seems deceptively simple. In truth, the wrong choices can slash margins, reduce profitability, and saddle owners with inventory that sits on their showroom floors. Confusing matters further, there's no shortage of items from which to choose. Depending upon the nature of your retail business, there may be tens of thousands of products to offer your customers.
Below, we'll explore 5 important factors specialty retailers must consider when selecting items for their store's inventory. If you use the following tips, you'll be able to compete more effectively with the mass merchandisers and large discounters.
#1 - Identify Salability
The key to identifying an item's marketability is understanding your customer base. Avoid falling into the trap of trying to determine what is best for them. Besides basic necessities (for example, food), most people purchase things based upon their desires, not their needs. A product's salability depends upon the level of desire your market has for it.
That's not to suggest that every item you stock must be desirable to your entire customer base. But, it must appeal to enough of them to justify its presence in your inventory.
#2 - Watch Your Margins
Specialty retailers often carry items which offer profit margins that are miniscule. The problem is that those margins can initially seem generous, but they can disappear due to a number of associated expenses. For example, your store may carry an item that has a direct cost of $5. You offer it to your customers at $10 and it sells quickly. Your margin seems to be 100%. However, overhead and other indirect expenses may contribute another $4 to your direct cost, decimating your margin.
#3 - Consider Popularity
Choosing items that are popular can be tricky. You need to have a firm grasp of a product's life cycle and be able to buy them at the beginning of that cycle. If you stock your inventory with hot items that are already mature, or in an advanced stage of their cycle, you'll run the risk of battling the big-box merchandisers. And that's a losing proposition for small retailers.
#4 - Offer Private Label Items
Private label products have enjoyed a surge of popularity over the past decade. Once considered to be cheap knockoffs of well-known brands, consumers are now drawn to them due to their high-quality and lower prices. By private labeling items for your retail shop, you can differentiate your business from the large discounters while enjoying healthier margins.
#5 - Tighten Your Focus
Maintaining a narrow selection of products allows you to focus your marketing and promotional efforts. You can leverage your advertising dollars by honing your message to a tighter audience. What's more, your sales staff can offer a higher level of service and advice to customers, further differentiating your retail store from the faceless mass merchandisers. As your business grows, diversify; but, do so carefully in order to maintain your focus.
Competing On Your Own Terms
Successful specialty retailing involves rigid control of the products you choose to offer your customers. Not only does this area provide the opportunity to maneuver around the chain discounters, but it can improve customer loyalty and increase your margins at the same time. Know your customers, watch your margins, and keep your eyes open for popular products that are at the start of their life cycle. Consider private labeling items and take care not to lose your focus through rapid diversification. By following these tips, you can control your inventory and compete with the big-box stores on your own terms.
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