Facing tough competition is one of the realities of retailing. Seemingly every competitor is gunning to out discount you, and the internet has become one of the toughest contenders.
I hear it all the time: “How can I afford to be competitive with the big box stores or the internet-based retailers such as Cabela’s or Amazon?” I would respond by saying, you cannot afford not to be competitive irrespective of what you pay for an item.
Not long ago, I heard a retailer bemoan that one of his competitors was selling product for nearly what he was paying for the same item. He bitterly complained that some internet outlets were really squeezing his margins down to 3% to 5% or lower. Yes, these are difficult issues, but they are actually selling opportunities for you.
Be mindful that your focus should be on sales and not just margins. Grocery stores work on very low margins (under 3%) yet they generate considerable profits. Why, because they have enormous sales.
The reality is that it costs a great deal more to gain a new customer versus keeping an existing customer. No retailer wants to sell an item at low margin or even for less than what he paid for it but consider the choices. Would you like to make 5% or 10% margin on something versus making 100% margin on nothing? Remember the grocery store that makes only 3% or less on each item sold.
If, when confronted with a price matching situation, and the retailer says “no,” then he has lost the sale, lost the customer, and has effectively told the world his store is not competitive, so shop elsewhere.
I firmly believe that retailers should aggressively be competitive and advertise the fact that they will match all competitive prices with confirmation of the pricing information. Think like the grocery chains; they focus on the sales and total gross margin dollars will ultimately soar.
Don’t be driven by the dogma that you must make X% gross margin on merchandise. Remember, you cannot deposit gross margin percent in the bank; they only accept gross margin dollars.
Today’s outdoor retailer is not just selling to their local market; they are effectively selling to the world, thanks to the internet. Every sale made to a customer outside your conventional physical marketplace is a bonus sale. Don’t shoo them away; rather make every effort to attract such sales.
To help you recover some of the margin dollars lost to meeting the competition, begin a constructive and cooperative effort with your vendors to help narrow the cost prices between you and your much larger competitors. Encourage the vendors to work with you with either price reductions, advertising money, free goods, special make ups or any other action which puts you and your competitor closer to parity.
Matching online prices is a smart policy and practiced by Wal-Mart, Best Buy, Target, Costco, and others. Such aggressive price matching keeps the customers in or returning to your store.
Advertise your price matching policy on your website, in your ads and with signs in the store. Remember small margins times thousands of sales makes for handsome gross margin dollars! Rush out to meet and beat the competition. Profits will follow you!