Definition of a Margin Monster – a retail person who is protective of pricing at a set Margin Percentage they believe is the lowest they can use in a particular category or department.
There are a lot of Margin Monsters out there. Fall brings them out, at least in discussion forums and phone conversations. Fall buying shows and planning for next year means even more Margin discussion and drive for higher Margins.
While there are always a few Margin Monsters surfacing during this time of year, we're seeing more of them this year than usual. Why? Possibly a combination of factors contribute to increased sightings. Declining Revenues and the need for more Margin Percentage to cover Expenses, increased knowledge of Margin Percentages and their possible effect on Profitability and others lead many to continue to either increase Margin Percentage or hold the line on current ones, when it may not be advisable to do so. I’ll explain later.
Hopefully you have access to guidelines for your particular retail segment and have used them to construct your Margin strategy. If so, you will notice the Margin Percentage Guideline is not the same for every category.
It isn’t always possible to start with an initial Margin Percentage at the top end just because it’s in printed form. There are many variables you have to take into consideration before determining what your initial pricing Margin Percentage will be. Those include your market potential (or lack thereof), your own facility including Staff, your Product and the market pressure put on by your competition.
I see some retailers do a knee-jerk reaction to Margin Percentage Guidelines during my visits. They want to rush right out and raise prices. Sometimes justified and sometimes not. While this has to be tempered somewhat, it is only natural. Margin Percentage is the first inventory business ratio many have been exposed to and it deals with an area all of us are familiar with – Retail Price.
Unfortunately, that’s not the whole picture. In fact, Margin Percentage takes a back seat to two other business measurements that really rule the roost for how much money you make selling inventory. Those measurements are Margin Dollars and Inventory Turns.
What’s the difference between Margin Percentage and Margin Dollars? Margin Percentage is merely a ratio indicating the percentage of the sale retained by your business from the sale of the product. Margin Dollars are much more important in that they are actual Dollars from the sale of the product used to pay the Operating Expenses, Wage & Wage Benefits, and allow Profit. Margin Dollars will always be more important than a Percentage. Attaining a very high Margin Percentage without enough Margin Dollars is not a winning situation. Realizing a lower Margin Percentage with more Margin Dollars might allow you more Profit in the end. This is one of those situations in which we say, "Less can be More".
Without getting into the details of Inventory Turns, let me just say that how many times you sell an item determines how many Margin dollars you generate. The key to maximizing Margin Dollars is realizing what the initial pricing Margin Percentage needs to be in order to generate the most Inventory Turns/Margin Dollars from that item. And that isn’t an easy determination or outlined on a Margin Percentage Guideline sheet. There are POS reports that can assist in determining what items should and should not bear higher or lower Margin Percentages, but for now, just know that it isn’t always a cut and dry number. A few (note I said a few) items may have to be lowered in price in order to generate more Margin Dollars. It’s the total package of items at higher and lower Margin Percentages that have to meet your own needs in Margin Dollars in order to pay Expenses.
One of my taglines sums it up best – "Don’t be Margins-wise and Turns-foolish".
Are you a Margin Monster? Are you so protective of your Margin Percentage that you lose Revenues? Do you know? Now is the time to find out! More importantly, if you are, now is the time to do something about it! Give me a call or shoot me an email. Let’s talk.