Hardware Retailing The Industry's Source for Insights and Information
Between constant price changes from tariffs, rising labor costs, a soft housing market and dropping consumer confidence, to say last year was challenging for retailers would be an understatement. While they can’t control outside factors, there are ways retailers can manage margin by addressing different operational areas, including payroll, operational expenses, pricing, inventory management and others.
It all starts with knowing your key performance indicators (KPIs) and using resources like the North American Hardware and Paint Association’s (NHPA) Cost of Doing Business Study to compare your KPIs to industry averages.
For Jacob Schaefer, retail store manager at Modern Hardware, tariffs and quickly changing costs, along with customer expectations and perception, play a major role in margin management.
“With consumers looking for products online now more than ever, pricing transparency is more important than ever before,” Schaefer says.
When evaluating margin performance, Schaefer looks at turns and gross profit, working to maximize gross profit without bringing turns down, which he says is a delicate balance.
“To manage this balance, we use margin master to update our pricing. We also use tools in Spruce to monitor margin,” Schaefer says. “We review our Do It Best pricing weekly through Margin Master. Other vendors we monitor at least annually. Some we monitor monthly depending on how often we get in new shipments from them.”
Markdowns and promotions are part of margin management but also play a major role in pricing perception for the store, Schaefer says.
“We try to keep at least three or four of our endcaps for promotion and clearance items,” he says. “This helps balance the perception that you aren’t a discount store, but also there are good deals to be had.”
Other operational areas where Schaefer is making adjustments to maximize margin include business services and payroll.
“We have changed our internet and IT services in the last six months, not only to get better service, but also to cut costs where possible,” he says. “We are evaluating payroll percentage of sales and monitoring payroll more than we have before, trying to balance service levels with being overstaffed. We also are working to develop a more organized payroll structure that includes hourly rates and incentives that will hopefully entice our employees to be more engaged.”
Discover four more strategies to protect against margin erosion here.
