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The whole truth about discounts. When are discounts dangerous and why is shoe retail not worth it?
30.07.2019 10043

The whole truth about discounts. When are discounts dangerous and why is shoe retail not worth it?

The main goal of any business is always profit, and the shoe business is no exception. In the pursuit of a buyer, many companies, especially representatives of small and micro-businesses, make the same mistake - they rely exclusively on a discount. The shoe market experts were divided into two camps: some advocate that they keep their margins with all their might, while others recommend starting to make discounts almost from the beginning of the season. The truth, as usual, is somewhere in between. We deal with our expert Maria Gerasimenko when the discount is really needed, and when it can be fatal.

Maria Gerasimenko Maria Gerasimenko - CEO of Fashion Advisers, a business coach, an expert in the field of management and development of fashion business. The main areas of activity: building business processes in the fashion industry, assortment matrix management, visual merchandising, sales and service management, development and implementation of loyalty programs.
www.fashion-advisers.ru

Competition methods

To begin with, there are price and non-price methods of competition. When a company chooses the path of exclusively price competition for itself, sooner or later it will be defeated in the price war: either there will be a serious dumping competitor, or (more likely) the company will become simply unprofitable.

Non-price methods of competition - this is a serious approach to doing business. When a company prioritizes demand, a unique selling proposition, product quality, effective visual merchandising, quality service, a shop atmosphere, well-established business processes, timely logistics, assortment analytics, trend forecasting, promotion and multi-channel communication with a customer, discounts and promotions become a pleasant addition, a kind of cherry on the cake.

When discounts are dangerous

1. "Checkers bare", or First we make discounts, and then we'll see!

This situation can often be observed in small and micro-businesses. Pricing does not include expenses, discounts and promotions. The margin coefficient is determined at random. Then comes the period of sales decline (competitors give discounts / everyone has “Black Friday”), and the company blindly makes discounts.

“Our stores are 15 years old. It used to be easier, there were more buyers, higher revenue. And now people without discounts have stopped buying at all. We always did an extra charge with coefficient 2, and we continue. We have maximum discounts up to 50%, on average 30%. Profit is not considered. To be honest, it's scary to count. I’m afraid I’ll have to close the business after that. ”

Lyudmila, owner of three shoe stores, Moscow

2. Discounts are addictive.

Only the Ministry of Health does not warn about this. A buyer who is used to discounts will not buy without them. He can come, try on, talk with sellers and leave to wait for discounts.

“My husband and I realized that with discounts we are losing profit and the business is no longer profitable. We decided to abandon the discounts ... and there were no sales at all! Even our regular customers, adherents of our brands, come and go without a purchase. ”

Irina and Anton, owners of a shoe store, Tver

3. Sellers stop selling without discounts.

As you know, the success of a sale at 70% depends on the professionalism of the seller. Considering that qualified sellers trained in product, sales and service are very rare today, discounts are the only argument that remains with the seller. No discount - no argument. And as a result, there is no sale.

“Sellers complain that buyers do not want to buy at full price. I don’t think that the problem may be in the absence of training, we pay them a good percentage of sales, and they themselves are interested in selling more! ”

Anna, the owner of five shoe stores, Tula

Stocks as a harmonious addition to non-price competition methods

1. Proper pricing.

There are indicators that are characteristic of most economic models of retail shoe stores.

How is the pricing structure built:

1 table

From the information indicated in the table, it becomes clear that if the cost of goods is equal to 1, then the mark-up factor should be equal to 3 on average in order for the store to be profitable and have the opportunity to conduct promotions.

If the margin coefficient is from 2,25 to 3, then EBITDA will be significantly lower initially, and discounts and sales are significantly limited.

If Mark up is initially less than 2,25 - the store will not have the opportunity to conduct promotions and sales, it will simply be at a loss!

Of course, there are exceptions to this rule, as well as to any other, that will allow you to shorten Mark up, and save stocks and sales:

  1. Reducing the cost of goods.
  2. Cost reduction.

Advocates of work without shares would object and offer initially to lower the margin coefficient and abandon the shares. Indeed, there are a huge number of business examples that can afford to work without promotions and discounts, such as: representatives of the luxury segment, designers providing tailoring services, ateliers and others. However, the shoe market operates in a highly competitive environment. It is difficult to keep sales high when promotions and other activities for customers are regularly held in nearby stores in the mall. Your task: to interest the buyer, give him a vivid emotion, encourage the buyer to impulse purchase, and, importantly, to get rid of product residues.

According to our estimates, this year we can safely say that the store worked well for the season if 45% of the product was sold at full cost, 40% with discounts, and about 15% will be technical balances.

Incentive Promotions

At the heart of the success of the incentive promotion are marketing and math.

The first thing to start with is to determine the purpose of the action. The assortment participating in the promotion, the duration of the promotion, advertising and communication tools will depend on this.

The goals are different:

  • increase in average bill
  • conversion increase
  • sales promotion of a certain category
  • strengthening loyalty of regular customers
  • attracting new customers
  • reduction of stocks

Rule No.1. If you hold an action without a specific goal, then its result will not be the one you expect from it.

After the goal is set, it is necessary to determine the timing of the action. It is important to understand that a well-designed and planned action must have strict deadlines.

Rule No.2. The average duration of the promotion is within five days, in other words: 3 +/- 2 days.

You can hold promotions such as "client days" when the discount for regular customers increases to 30-50%. Or a discount on the first item in the 10% check, the second - 20%, the third - 30%, designed to increase the average check (it is important to place the goods in the check in descending order of price). Or it can be a category action “When buying brand X boots - a set of care products as a gift”.

When you set a goal, it will become clear which assortment is participating in the promotion. The only thing we do not recommend selling the basic range with big discounts. You buy this assortment from season to season, and it shows stable sales even without discounts.

The main goal of any business is always profit, and the shoe business is no exception. In pursuit of the buyer, many companies, especially representatives of small and micro-businesses, do the same ...
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