Hardware Retailing

SEP 2017

Hardware Retailing magazine is the pre-eminent how-to management magazine for small business owners and managers in the home improvement retailing industry.

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Page 55 of 118

September 2017 | HARDWARE RETAILING 51 down into inventory classes. Then he creates a schedule where he can tackle one category per week during the slower times of the year. With help from his staff, he uses price history reports from his POS system to review current prices and margins on each item with those of the past. "We look at how long it's been since the last retail price change. Some of the prices we found hadn't been updated for a couple of years," he says. If the cost has risen but the retail hasn't, Payzant can make that adjustment. Checking prices twice a year is generally frequent enough to catch any changes that may have occurred. Of course, commodity items are regularly checked using weekly competitive price checks by telephone and online sources. "Doing these price checks has enabled us to better protect our margins. There are items where you are making a 35 percent margin, and maybe that looks good," he says, "but if you used to make a 45 percent margin on that same item, you are losing." The second part of Payzant's pricing challenge revolved around special orders. Staff in the sales department are responsible for giving estimates on special-order items, and sometimes would have a different approach for calculating the price. "People often get comfortable just using a standard multiplier to come up with a selling price and apply the same multiplier to all categories all the time," he says. The solution was to create a standardized approach everyone would use. First, Payzant created a price matrix that included all the special-order categories, taking into account margins and appropriate discounts. If a customer is buying vinyl siding, for example, the employee creating the price quote could use the specific multiplier for that item. Payzant also gave his employees extra training on the importance of margin and the impact it has on overall profitability. It may be too early to measure the impact of this standardized pricing strategy on his overall sales numbers, but Payzant is confident that a more systematic approach to margin management in even a small portion of his store will boost overall profits. Pointers for Success Make Price Shopping a Habit Every week, someone at Payzant Home Hardware Building Centre is price shopping. "We have a bucket of 50 hot items, and every week we take 15 of them and do a price check with our competitors," Payzant says. While Payzant uses price checking for commodities in the lumber and building department, there are benefits from doing the same with price-sensitive items in core hardlines categories. Begin by price shopping your most price-sensitive items on a regular basis. Choose a manageable number of items to price shop each week, and then assign an employee to the task. Use competitors' websites or personal visits to the store. 1 Educate Staff on Margin Get employees to understand the difference between margin and markup. The two terms might seem similar—markup is the difference between the wholesale and retail price; margin is that same difference expressed as a percentage of sales. Margin is a better way of understanding profit, but many staff who use the calculation for a markup instead of the one for the margin can end up costing money. Teach staff that profit is not a bad thing, Payzant says. "People get excited about sales when the number is big," he says. "But you have to ask, 'What is the margin on that number?'" The small number may have a better margin than the larger one, making that a more profitable sale. "Get employees as excited about increasing the margin on a sale as they are about a large sales number." 2 Review Prices on Special-Order Items If you offer special orders, check to see how you are pricing those items. Prices set by your distributor likely have good margins. But if the catalog you are using requires you to calculate your own, make sure you have a systematic way of calculating them so each person offers a consistent price. Also encourage them to round up. Even a small increase in margin can add more dollars to the bottom line. Payzant encourages his staff who set prices on special orders to round up the price after they use his pricing matrix. 3

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