When Storms Bring Opportunity

Navigating Reduced Sales, Narrowing
Profit Margins & Increased Payroll

Image: freshidea / Adobe Stock

After a powerful storm passes through, you’ll hear stories of beachgoers stumbling upon many an item on the beach. These items range from dangerous grenade simulators to rare and valuable coins. There’s a business application here: After a storm, there’s always an opportunity to discover something you weren’t expecting — be it dangerous or rewarding. Always be looking, you never know just what you might stumble upon!

Quite similarly, the firearm industry is amid what some might call a “perfect storm” of three rather impactful trends — reduced sales volume, narrowing profit margins and increasing payroll expenses. None of these build confidence for fair winds in the future. Let’s put our finger to the wind and gauge how each of these factors could impact a retail business individually.

A Different Take On Decreased Sales

Retail gurus estimate retail in 2023 is expected to see a decline in sales volume of 10%–12% year-over-year. With the COVID surge now well in our rearview mirror, our industry may see reductions in sales volume going further into the negative than what’s being predicted. Seeing this in print looks like a very dark cloud on the horizon! 

Let’s use a metaphor to get some perspective. The same dark storm cloud spelling disaster for your weekend barbeque might also be a godsend for a farmer seeing the end to a drought. How you see a reduction in sales volume is all a matter of perspective.

Let’s broaden our view a bit and see where the silver lining here might be. Firstly, when I hear a reduction in sales volume the first question I want to ask is “Is this compartmentalized to a particular segment of my business?”

If in fact most of this sales reduction falls into a few categories, there is the potential to limit the negative impacts. I can work with this, and inventory less of these declining categories while looking for an opportunity to improve sales in other areas and lessen the negative impacts of a slow market.

Focus your products and services investments into the areas still showing better-than-average performance while also looking for “unplowed and fertile soil” that might hold new opportunities for growth after the storm. When you focus on having a more streamlined and efficient product offering, it may just free up a significant amount of cash and let you invest in ways to diversify your business that will generate the needed revenue to outcompete other retailers in your market space.

Selling on service is the key factor in weathering the flood!

Narrowing Margins & Flood Waters

Narrowing profit margins can often feel like the coming flood during the storm, and you see the water rising and feel powerless to change it. In surveying online pricing, it’s clear the industry is trending toward pre-COVID profit margins on the products they sell. This is a strong indicator showing retailers view low prices as the centerpiece of their sales strategy. The key here, like any flood, is preparedness. 

Preparedness hinges on having the proper tools and training to be ready for any contingency. In the case of narrowing margins, the first piece of preparedness is to clearly know exactly how much profit margin your operation must generate to be able to pay all the bills. This is a non-negotiable facet of every business unless you, the investor(s), are okay with injecting personal funds into the business to keep it on life support. 

The second, critical part of preparedness is to train your staff to lean on other aspects of your business to close the sale that have nothing to do with price. In all my years of running my retail shop, we never prided ourselves on having the lowest prices in our market. (It was a very price-competitive market.) With three other local gun shops, two indoor ranges, one large online discounter and five large big-box retailers all within a 20-minute drive of my location there was a lot of price pressure, yet we never bent nor even “price matched” the competition. Why? Because we knew how much margin we needed to make on our products to keep the doors open.

We trained our team to focus on the other aspects of customer service that made customers want to do business with us regardless of price. Selling on service is the key factor in weathering the flood! In lean times training staff often goes by the wayside, but you may want to instead double down your efforts and be the best shop in town not because of what you sell but because of who you are as a business.

Your job here is not to just take customers away from other gun shops in town, but to convince people to spend in our industry instead of other forms of recreational spending. Remember, customers only need to perceive your store to be 10% better than the competition to get your unfair share of the local market.

Train your staff to close the sale by leaning on other aspects of your business that have nothing to do with price.

Increasing Payroll Expenses

Not too long ago, the media was all abuzz about “increasing minimum wage to $15 an hour,” yet here we sit with many (if not most of us) paying at least this much — if not significantly more to hire and retain quality employees. (That is, if we can even find them in the first place.)

Managing your human resources from a productivity and staffing level has never been more imperative for success. This requires the management team to be far more forward-looking than ever before. Knowing just how much your payroll expenses impact profitability can be a very simple yet effective way of measuring the changing winds during this storm. 

Simply put, take your “all-in” payroll expenses for a period and divide it by the total revenue your business generated for the same period. Express this calculation as a percentage and you will have what we will call your “Payroll as a Percentage of Gross Revenues (PPGR).” Once you have this number in hand you can quickly and easily see how PPGR impacts profits.

For example, if a store averages a 25% profit margin across all of their goods and services and their PPGR is 20%, you can just simply subtract 20% PPGR from 25% profit margin and see you have five points of profit margin left to pay all the other bills. Add in another 2% for credit card fees and you are now down to three points. It doesn’t leave a lot of wiggle room now does it? In what ways can we manage this better? 

The first facet we can approach is productivity. If the same number of salespeople working the same number of hours can sell more products and services, then the PPGR will go down. By being relentless with our teams about salesmanship excellence, we can push each team member’s productivity up significantly. 

Next up is staffing levels. It’s all too easy to cry “all hands on deck” when the storm arrives, but an inefficient and chaotic deck can be worse than fewer, better trained and more efficient team members manning the sails. This is where sales volume forecasting plays an important role. Those reading this article and who work through a POS system could easily look at historical sales volumes for the same period in the prior year. Using current market conditions, they could predict the potential sales volume their store will see in the next days and weeks, then staff the store accordingly to keep the payroll overhead manageable and appropriate for the needs of the business.

Overstaffing in these conditions, in my experience working with clients, is the most common mistake made yet the easiest to correct. It forces me to mention, however, there’s no path to profitability purely through a reduction in the workforce. 

Managing the team is a blended art and science of not only managing the number of hours worked but also staffing the facility with truly productive staff. When you can balance your team to have enough staff on hand to maintain good customer service, able to handle the sales volume in a profitable way and do it all from a predictive mindset, a store can weather through most any storm and come out the other side a stronger and more confident team.

The real opportunity here is for the facilities that hone their skills, plan and have contingencies in place for unforeseen circumstances. They will be the ones who come through the storm with the wind at their back and inherit the customers and business volume shed off by the unfortunate businesses that closed because they did not prepare. We can all feel the winds of change around us. Now is the time to set your course for success!

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