Volume 27/Number 24; March 31/April 7, 2014
(First of three parts)
When I was in college, I earned my daily bread by giving private guitar lessons at a music store. The owner of this store was a good-hearted and generous fellow. Maybe a little too generous. He sold his wares at incredibly thin margins—so thin that he had to take part-time work outside his store to stay afloat, always had to do things on the cheap and could never get ahead. His excuse was the same as many floor dealers’: “The only thing people care about is cheap price.” That was 25 years ago, and things haven’t changed much for him.
That’s a heavy price to pay for selling things inexpensively. Not only does it hinder your ability to grow your business, but you suffer personally through the inability to save for retirement, take vacations and simply enjoy life. Too many flooring dealers can relate.
Walmart can sell things inexpensively because the company is set up to move a ton of products, so it (sort of) makes it up in volume. Flooring retail doesn’t work that way; you will not make it up in volume. Yes, there are a handful of national dealers who have adopted the Walmart model and seem to be succeeding, for now. But cheap price is a fragile market advantage because all it takes is someone figuring out how to sell at an even less expensive price and you’ve instantly lost your advantage—and quite possibly your business.
There was a time when Kmart ruled the cheap-price retail kingdom. Thirty years ago it was inconceivable it could be knocked from its throne, but then Walmart came along. And if it isn’t careful it will suffer the same fate.
Other discount boxes, not to mention online retailers, have been carving up the cheap-price retail market and stealing market share from Walmart. An editorial in Forbes by Rick Ungar has a telling title, “Walmart Pays Workers Poorly And Sinks While Costco Pays Workers Well And Sails—Proof That You Get What You Pay For.” Costco’s earnings for year-on-year sales were 8% while Walmart’s were 1.2%. Walmart pays its workers horrible wages and is grossly understaffed, thus resulting in a lack of customer help in the stores and an overall customer experience that is terrible and getting worse. Ungar theorizes this has driven customers to Costco. That’s what happens when cheap price is your driving force; things like customer service get kicked to the curb.
I urge retailers to completely get out of the cheap-price rat race. I’ve taught many dealers to sell at premium prices and to do so in many different markets, from big cities to tiny agricultural towns and everywhere in between. You can sell at premium prices, even if you’re right across the street from Home Depot. It all starts with a willingness to adopt a different mindset and implement new sales and marketing strategies.
I wonder how the music store owner’s fate would have been different if he’d devoted his energies into figuring out how to sell his products for the most money. I wonder the same thing about floor covering dealers who are trying to compete on price. In part 2 of this column I will reveal how to determine if you’re facing a long, slow financial death.