This is an edited down and condensed version of a longer resource that will shortly be available for download in PDF form.
Margins are a key metric for all high-dollar retailers, and for the furniture retail industry in particular. While all furniture retailers would love to increase their margins, not all are successful in doing so. In a recent Home Furnishings Business (HFB) report, the best performing furniture retailers enjoyed margins of close to 52%, while the industry average hovered around 48%.
In this report, we’re going to dig into the secrets that explain why some furniture retailers have been able to increase their margins up to 50% and beyond.
According to the Home Furnishings Business report referenced earlier, businesses surveyed split their costs between the big three types of selling expenses:
On average, selling expenses were 2.4% lower for the best performing retailers than the industry average (20.2% vs. 23.8%). The best performing retailers are not only ruthless about eliminating selling expenses that don’t produce returns -- they also achieve more value for every single dollar spent on sales.
At the heart of this difference are sales associates, the largest selling expense reported by the retailers surveyed.
Of the “big three” selling expenses, sales associates represent the biggest opportunity to increase margin using two core strategies.
Research suggests that most of the money furniture retailers spend on commissions, bonuses and tenure-based rewards for sales associates doesn’t translate into results. According to Forbes, most employee rewards programs focus on tenure, yet these kinds of programs have virtually no impact on performance. In addition, cash bonuses are generally absorbed into an employee's salary and spent on household bills and expenses, making them less meaningful for the sales associate.
Ineffective efforts to motivate sales associates can be replaced with lower-cost, evidence-based alternatives like Arcade that give employees the choice to be rewarded with gifts and prizes that are uniquely meaningful to them.
When sales associates are highly motivated to perform, they do a number of things that increase margin and help to create the next level of customer experience.
In business, it often feels like increasing profit margins requires sacrifice, whether that’s cutting salaries and commissions, selling lower quality product, or accepting unfavourable terms from a vendor. In contrast, the strategies outlined here all involve building a better business while, at the same time, increasing margins. Empowered sales associates are the key to success.
Stay tuned for the full version of this report.