The 5 hacks we've used to increase basket size by $10 for underperforming retailers
Often, retail isn't dead, it's just not optimized...
We at Newpoint Advisors take c-suite positions in (de)stressed SMB’s, acting on behalf of banks, private debt or private equity funds, with the objective to make them financially healthy again.
Often a retail client will come across my desk as a (de)stressed client. The situation is usually is as so —> (1) reduced # of transactions (2) dropping basket size per transaction (3) high cost of carrying slow moving inventory & physical retail space. Mix these 3 ingredients together will make a not so tasty cash crunch that anyone in your capital stack want to send back to the kitchen.
I am currently in a Chief Restructuring Officer role for 2 chain stores in the mid-west, both with long term histories in their market but both with long histories of apathy towards the e-commerce boom. Ignoring major trends like this is never a good idea, especially when a shark like Amazon is smelling blood in the water. So, what do we do about it?
We’ll, often the problem isn’t always changing market forces, it’s the poor fundamentals of running a retail store that a lot of SMB retailers aren’t optimizing on. Don’t forget, the majors aren’t shutting down retail stores, they are opening new ones - Costco opening 100 new locations over past 5 years.
What we find is that the process starts with making your smaller # of transactions spend more money. That reflects their level of satisfaction (happier customer = buys more), which creates word of mouth both IRL or on-line. The domino effect trickles down into more people walking in the door (assuming COVID safety protocols) & reversing both trends (1) # of transactions (2) basket size.
Our goal for our clients is always to start with increasing basket size by $5/ticket ($10/ticket as a phase 2 increase). Here is what has worked for us…
Why is your customer in your store in the first place?
Assess their “needs state” —> different customers will have different reasons for walking in the door
Ask a subset of your customer base, “what are you using that purchase for”. Gather 5 distinct reasons for how your customers use your products
Put together a pre-packaged list of products, you carry, that would appeal to that “needs state”
Train your staff to (a) ask open ended questions to what “needs state” that customer falls into & use words like “I strongly recommend” or “we have something new I’d like to show you” & keep that list tight
Sell only 1-2 additional items to that customer that would solve a problem based on that needs state. There is a balance here - overselling will turn a lot of people off
Put your 2 highest turnover categories/ departments on opposite ends of the store
Ever notice how Walmart’s have grocery & pharmacy at opposite ends of the store? That’s no accident - they want you to walk past electronics, clothing & home goods to get to those high turnover departments to encourage impromptu buys
The time & space at the cash can create additional revenue opportunities
We’ve run cashier programs where they “lightly suggest” a high turnover items that is below $3 that is on trend at the moment (think; hand sanitizer)
Run a cashier program - the associate who sells the most, wins $25 for the week + gets recognition at a weekly company meeting
Merchandising the <$3 item can create an impulse buy as well, but the cashier sales program will push the product must
Have a well marked “race track” through your store to control where people walk
This is a merchandising hack, where you are using end cap space that either has distinctive signage or unique merchandising
Think of a European city, where the most beautiful homes line the most prominent promenades. This is what you are you are doing with your store.
If you can sell that space, the better. Some clients are getting $300 per end cap for a 2 week period from having vendors pay for that space.
Use those funds to reinvest back into your “race track”
Sell a service, not just a product
I love high margin activities like services (ex: gun range for a firearms shop, fix lawnmowers for a home supply store).
This will also create another reason for them to come back to the store, creating a stronger connection to your business
Your floor staff should be educating every customer that walks in about the suite of services you offer
If you don’t have the space for it, make it a mobile service - it may not allow for repeat visits but still creates a strong connection to your business
By combining these 5 hacks along with a well defined process flow (meaning; what actions does your staff take as soon as a customer walks in the door to when they cash out) are proven to increase your basket size by $5-$10 per ticket.