Today is Thanksgiving and Friday following Thanksgiving is traditionally the busiest shopping day of the year.
“Black Friday” earned its name from the past. Most retail businesses had been operating in the “red” the first part of the year. Friday after Thanksgiving was the day business began to operate in the “black”. Finally breaking even and hopefully making a profit.
Last week Walmart made the announcement that they were raising their digital prices to help support their brick and mortar stores. Their reasoning was shipping costs were negatively affecting their retail stores’ profitability.
Owning a business and dealing with shipping costs, I have learned how much shipping expenses affect profitability. When I order large quantities of product I am able to calculate my per item cost keeping shipping expenses at a manageable level. When I ship only a few products to my customers, shipping costs always negatively affect my net profit. Why, because customers have been trained to expect “free shipping” from many online companies. Shipping costs always exceeded what customers are willing to pay. (I have a fixed cost for shipping while absorbing the balance in gross profit)
What is your margin?
The takeaway: make sure your product price margin is able to absorb unexpected costs allowing each sale to be profitable.
The second lesson is to observe what the “big boys” are doing. In the past, on Black Friday most retailers would be actively promoting sale items with deep discounts. This has been the trend, however, this year is remarkably different. Retailers have learned that customers “cherry pick” the sale items and then buy other items elsewhere. The result, although the stores experienced traffic, their profitability was negatively affected. Retailers were taking the lead from grocery stores implementing the concept of a loss leader. This works in an environment with consistent long-term customers but not so well on one-day sales.
The second takeaway: make sure your sale pricing does not draw customers just for the sale, negating customer loyalty. “Groupon” is a good example. Their concept is great, promoting days or times when you want to increase traffic. The problem is “Groupon” users only visit establishments with a “Groupon” special, increasing business but not profits.
Having a Gig Business we must learn from others, their wins and losses. We do not have the deep pockets or the time to make up for past lessons.
Remember, hope is not a strategy, plan your work and work your plan. Join our FaceBook page..
Tim and Mike