Sometimes furniture store owners say and do things that defy reason. Three examples.... more to come.
Sales Management Magic by Joe Capillo
As a long-time observer of the retail side of our business I find myself asking, with greater frequency and incredulity, “what are they thinking?” Here are some of my favorites, and they’re general enough to apply broadly to a lot of readers’ businesses. Maybe even yours.
Thoughts about taking ownership of “the job”
What are owners thinking when they say they want their managers and employees to “take ownership” of their jobs and their stores?
What they really mean to say is that they want their employees to handle difficult situations and take initiatives in exactly the same way as their boss, without the benefit of being told what to do. In other words, they want their employees to act like their mental clones – which wouldn’t be such a good idea in most cases.
Asking employees to take “ownership” makes the big assumption that the employee knows which things she can take ownership of, and which things she can’t, again, without being told. When solving a tough customer problem, for example, wrong decisions about how to handle difficult customer issues are fraught with danger for the employee who “takes ownership” and does the obvious right thing. That’s because the “right thing” may not be in line with the owner’s way of thinking which is often self-serving and based on “the realities” of our business. Such things as long delivery times, fabric outages, credit holds, internal errors, quality or service issues – anything that might cost the company money to fix – all fall into the realm of the employee being expected to “take ownership” around how the customer is handled.
Sales associates and customer service people are the most likely people to square off face-to-face with angry customers while the owner stays cozily cloistered in his office. Owners, however, often think that customers should understand their side of a problem. Employees are, of course, in the middle of this dilemma.
I use the word “dilemma” instead of “problem” because there is a distinction that has to be understood: problems have solutions; dilemmas don’t. The answer to a dilemma is most often to cut everyone’s losses and get out of it.
Leaving dilemmas or problems open and unresolved in an organization for long periods actually costs far more in both dollars, morale and customer satisfaction than an immediate resolution would have. Let’s say that a service tech is sent out to inspect an obvious problem with a piece of furniture in a customer’s home. Using an Ocam’s Razor approach and taking the simplest route to a solution will, in practically all cases, be the cheapest and most effective way of resolving the problem. Replace it. No service trail, no service order tracking system, no tech costs with gas prices at the highest level ever.
Replace it and fix the bad one in the shop for resale. Granted, custom order goods are a different issue in most regards, but not in the customer satisfaction one.
Interestingly, most managers will almost always take the Ocam’s Razor approach of “get it done, make the customer happy, and off my plate”.
Interestingly enough, they would most likely be chastised for doing so by an owner who is focused on the organization’s protective processes and procedures or on this month’s financials. Just what are they thinking when they ignore the long term, hidden, cultural, market, and organizational costs? The answer is – not much.
Thoughts About Purchasing
Another favorite “what were they thinking?” situation is that often wacky world of purchasing in the furniture business. I have met dozens – no, hundreds, of independent furniture retailers who can point to operating profits on the income statement, but who have no cash on hand. Today that is a deadly situation because of the difficulty of finding financing for inventory. It’s not just difficult, it’s nearly impossible for marginal retailers without very strong balance sheets.
There are only a few places that operational “profits” can be found; in the bank, in the warehouse in the form of inventory, or in the owner’s bank account and other personal assets. Mostly though, it’s found in the warehouse. I recently met a retailer with several stores in a major metro market who had over $2 million in dead inventory in his warehouse, and no cash on hand. All of it was stock purchased at speciously large discounts from overseas vendors in container quantities. “I’ve got 60 points on that stuff” he said.
What he failed to consider is that the cost of carrying one dollar of inventory for one year is 30 cents. That’s 30%! This is the most important business expense a furniture retailer should control, but it’s also the most difficult, because it doesn’t appear on the financial statement as a line item. Instead it’s found buried in other expense categories such as warehouse rent, insurance, interest expense on an inventory loan, plus borrowed funds for operating cash (because it is all tied up in inventory), gross margin (where markdowns live), warehouse salaries, and off–the-income-statement costs to your business such as lost sales because you have no inventory of your best sellers because you have no cash to buy them. You get the idea...
Thoughts About GMROI
We all know it is not possible to live long on Earth if you believe you can negotiate with gravity. Most of us wouldn’t have lived beyond the fist tree-climb if we didn’t learn this truth early on in life. Well, there’s a gravity-like rule in the business world, too. It’s called Praeto’s Principle otherwise known as the 80/20 rule, or the Law of Imbalance. It says that 80% of all outcomes will be generated by 20% of all causes – or something like that. In our business, the metric that is used to “negotiate” with Praeto’s Principle is GMROI. It’s amazing that a large number of buyers in our industry know little to nothing about their GMROI. What are they thinking? – Not much.
If you have a favorite “What are they thinking?” issue, send it to FURNITURE WORLD at joecapillo@furninfo.com.