This article appeared in Home Furnishings Association website on January 18, 2018.
It’s time to take a second look at your store’s fixed costs
By Dan Schneider, SIB Fixed Cost Reduction
Industry knowledge is what makes you good at what you do. It’s likely, if you’re reading this magazine, that you’ve learned from hard-won years of experience how to navigate the challenges and rewards of the home furnishings industry. You likely have relationships with key manufacturers and reps that make your store a unique destination for your customers. Your talented sales staff knows how to promote the current lines artfully arrayed on your floor. And you’re ahead of the curve on SEO, capable of converting consumers doing online research into shoppers walking through your door.
And yet, if the past 30 years have taught us anything, it’s this: Deep-pocketed insiders and mid- and large-sized chains are just as prone to poor performance and just as threatened by vertically integrated behemoths as brand new outfits testing the waters at their first Las Vegas or High Point Market.
To truly manage your business effectively, industry perspective isn’t enough. You’ll need a sustainable, organized, and sometimes radical approach to all facets of your operation, including your fixed costs—what keeps the lights running, the phones ringing, the security system up, the trash going away.
More important, and, sometimes much more difficult to recognize, is that in order to remake your spend you’ll need to work through your costs without any preconceived ideas and expectations about rates that have accumulated over the long history of furniture retail.
In fact, in negotiations, deep embeddedness in an industry can be a hindrance: Vendors, based on convention and history rather than reality, often alter their pricing by industry for services that are actually identical.
Private cloud storage for brochures and promotional materials costs the same as cloud storage for hospital records, yet hospitals pay much more, for no reason other than that the medical industry is used to doing so.
We hear often these days about consumer data and big data—slices of which, we’re promised, will be the salvation of our operations. We also know ethical, intensive research into the behavior of our customers and securing their loyalty is critical to present and future success.
But let’s do more: let’s be self-critical, and let’s be open to outside information that, at first glance, falls far outside what we consider the typical scope of our operations. There is data out there not only for decoding the mysterious purchasing patterns of Millennials or the most effective way to encourage your guests to buy the patterned rug in addition to their trendy new performance-fabric dining chairs.
There is also data out there for you to contextualize your costs, to broaden your perspective on your brick-and-mortar spend. You may not be a giant in control of every minute detail of the processes that bring product into your warehouse and customers through your front door. But you can certainly approach your fixed costs like one by using resources and information from beyond your locations and beyond the industry to renegotiate or optimize how much you’re spending. This applies to all your costs: everything from basic services to hiring programs to VR experiences for your customers that enable them to envision their new couch in their own living room. Think big, think beyond; even if you’re a medium-sized or boutique store.
How much do you actually know about what you’re spending on telecom, pest control, waste removal? How effective is it, to consolidate your contracts across multiple locations into one national provider? Blanket solutions seem appealing, but because of variable service levels, they can simply turn into a way to provide a large vendor with multiple opportunities to take advantage of you.
Your strategy needs to be more sophisticated, more detailed, more flexible. Instead of reacting and worrying, you should be aggressively attuned to every excess charge and billing error, every unnecessary fee used to pad the margins of your service providers. Once you start proactively looking, you’ll find such opportunities in even the most stable-seeming spend areas.
The best strategy is to negotiate with the providers you currently use—and to do so with a knowledge base that isn’t clouded by the frequently erroneous expectations of the industry. Why be burdened for years with secret fees that never even show up on your invoice? Why pay for service levels that vendors apply whole-cloth from other industries when your operation has its own distinctive needs, or when each location is unique?
In almost a decade of saving operations of all sizes money, the biggest lesson we have learned is that fixed costs are not fixed; they are negotiable, not inevitable. To save your business thousands, accepting things as they are will do nothing and consolidating may be a dangerous form of relief. Instead, ask yourself how you have been thinking about your spend. Has it seemed unavoidable, immovable, frustrating? Don’t let it be. Shift your perspective. Think like you have control, because you do.