Retail Confidential: 10 Things Consumers Should Know

15 09 2012

I imagine there will be some folks with small businesses who won’t like me telling you what I am about to tell you.  But it is high time consumers got a better understanding of just how difficult it is to run a small business in today’s market, and why sometimes their prices are higher than the National chains.  This article does not begin to touch on all the variables and details, but will hopefully give you an appreciation of just how perilous it can be to own a business today.  Maybe it will encourage you to shop at the smaller stores like the one I manage more often.

If you don’t shop at independent stores, eventually they will be gone – right along with your choices.  Major Retailers (National chains, “Big Box” stores) do not care about you or what you want.  They are faceless, nameless money making machines, though they will pay lip service to how they value your business, when really they just value your money.  When they carry a product that doesn’t sell, they stop carrying it.  They don’t care that you like one brand of product better than another; it is all about the bottom line.  They are looking for products with the highest profit margins for the lowest investment and are often not concerned with quality.  That’s how lead-paint laden toys got into your kid’s mouths; they didn’t care enough to check the quality of the product, they just liked the numbers and the package so they ordered it.  Small, independently owned stores know that selling you a defective product – or a dangerous one – can literally ruin them.  So they seek out the best quality products to offer, and sometimes those things cost more than what the National retailers offer.  There are other legitimate reasons for higher prices at local retailers, so read on if you care to know just a few of them.

There is so much I could tell you that many of you likely don’t know, but let me just cover what I like to call my Top 10 Things Consumers Should Know about Small Businesses (that no one wants to tell you).

10. The Most Expensive Thing in a Small Business is the Staff.  People are the backbone of any organization, but much more so in a small retail business.  It is not easy to find the right people who can work at a small store and deliver great customer service every day while juggling myriad tasks.  They have to be smart and trustworthy enough to be at the store alone for periods of time and handle any and all situations that arise.  My employees have to fix the computer if it crashes, or use a handwritten sales receipt and a calculator if they can’t – and answer the phone, and wrap gifts, and clean, and help with ordering.  A cashier at Target only scans price tags, takes cash, and hands you change that they don’t even have to count.  They call a manager if they have a problem.  The caliber of person needed for a small business simply costs more, and the really good ones are worth more than you can afford to pay them, so sometimes you can’t get them to work for you.  Let’s conservatively say that for the average retail store that’s open 10 hours a day, six days a week, you spend $5,000 a month in payroll with one full-time and two or three part-time employees with your employer tax contributions and Unemployment Insurance (neither of which are optional).
9. The Second Most Expensive Thing in a Small Business is the Place.  The mortgage or rent for commercial spaces is very expensive.  In my town right now, a rented space in one of the ultra-premium shopping centers where you like to shop (the new, shiny, clean ones with the piped in music, ample parking, and great atmosphere) average about $25 per square foot per year plus Common Area Maintenance (CAM) charges of around $8 per square foot (that’s the money that pays for the parking lot and the music).  This is down from $35 and $12, respectively, about 3 years ago (but if you signed a lease 3 years ago, you are still paying those higher rates).  So if you have a modest size space (about 2,500 square feet), that’s $6,875 per month just to rent the space.  (Just to emphasize how expensive this is, that’s $3,400 per month for 1,250 square feet – the size of a small home that in our town costs an average of $1,000 a month.)  Add utilities, insurance, and maintenance (most commercial spaces make it the tenants responsibility to maintain the heating & air system, repair broken plate glass, and clean the windows), and you can easily spend over $8,000 per month for this house-sized space.  Even in an average, aged shopping center, you are looking at about $4,000 per month, and in a low-end center maybe $3,000.  Poor location is one of the top three reasons small businesses fail in the first 5 years, so it’s pretty important to be in a good place – but it will cost you.  Oh, and when a National retailer wants to put a store in a local shopping center, they generally get offered a much lower rate than small businesses because they have the star power – their name alone will bring traffic to the property, so it’s a quid pro quo that is supposed to help the little stores (even though there is no guarantee that if you are going to Target you will shop the other stores while in the plaza).  In this sick twist of economic karma, the big places with the high sales volume – who can afford to pay more – pay less rent than the little places with the small sales volume who can barely make their payroll.  (If you are doing the math as we go, we have already crossed the $10,000 mark on monthly expenses and we haven’t bought anything or paid the utilities yet.)
8. Many Small Business Owners have Bet their Houses on the Success of their Business.  Commercial Landlords generally require a personal guarantee for the lease of a business space unless you are a National chain.  Yes, that’s right.  Even if you have formed an LLC or S-Corporation, you probably have to sign a personal guarantee to rent the space.  This means that the owner of your favorite restaurant, hair salon, or boutique clothing store is quite literally betting his or her house on the business.  The guarantee allows the landlord to pursue a judgment against you in court if your business fails and you default on the terms of the lease.  Also, tenants usually have to pay to upfit a commercial space for their use (plumbing, electrical, walls, floors, paint, lighting, etc.) and many tenants take a second mortgage on their homes to accomplish this, unless dear Uncle Albert passed away and left them $100,000.  The average upfit of a new shopping center space of 2,500 square feet is about $100,000; modifying an existing space averages $50,000 here in my town.  Retail is not for the faint of heart – I’m just sayin’.
7. Maker’s Mark Taste, Old Crow Money.   If you are a small retailer or restaurateur, you want to offer the best products possible.  Today’s consumers want the best quality for the least investment possible.  The electronics age has fueled this mind set; big machines are producing our little machines by the millions and over time they have gotten really cheap because the volume of sales makes up for the lower profit per item, and the machine is cheaper than human labor.  Cellular phones are a prime example.  The best quality housewares, clothing, and food cannot be made by machines – they have to be handmade, hand fed, and organically grown.  The care involved in those processes costs a lot of money (refer back to number 10 above).  The dilemmas faced here are many, but let’s use this example:  A restaurant may have to decide between organic, local chicken at $10 per pound or mass-produced chicken from Tyson’s Noel, Missouri plant for $4 per pound.  How much are you willing to pay for your chicken parmesan dinner?  If they opt for the organic, they will have to charge you $22 or more to break even on their cost (once side dishes, gas for the stove, and labor are added) or sell it for $18 and not make their payroll (and we didn’t even add in rent and utilities).  So they opt for the mass-produced chicken to offer you a reasonably priced dinner and still be able to make their payroll and order more chicken.  Or they can pound out a few carefully butchered ounces of the organic chicken, portion out more pasta, and hope that you won’t complain that the portions are too small (you bourbon drinkers know exactly what I’m talking about – the choice between ample Old Crow on the rocks, or a little bit of watered down Maker’s Mark).  (Here, I could launch into how the National chain restaurants don’t make much of their food on-site and thus can sell it for less, but I am trying to stay focused.)  The only way a local restaurant can consistently offer higher quality ingredients and a talented staff to cook them properly is if you are willing to pay more for them and come back often.
6. The Crystal Ball is Broken.  Retail is extremely volatile.  There are certain well-established norms in the retail and restaurant industries, but even the norms sometimes don’t hold true.  For instance, Saturday is typically the busiest day in retail each week, and the busiest evening in restaurants.  This does not mean that every Saturday you will sell a certain amount of product, or that you will turn all your tables twice.  Some Saturdays hardly anyone steps into our store.  Why?  Who knows; weather, special events elsewhere in town, certain times of the year – like January – are notorious for being slow.  But on a given Saturday in May, no one knows why it’s dead.  If you do come in, I don’t know if I will have what you are hoping to buy; if I have it, I don’t know if you’ll like the color or brand or price.  In short, retailers and restaurateurs take educated guesses about what you might want and when you might want it.  We can’t have everything that will please everyone on every day.  We don’t have that kind of money or storage space.  Plus we are small and have a certain identity; if the name of our restaurant is Little Italy, are cheeseburgers a realistic expectation of us?
5. Special Orders Don’t Upset Us, But Impatience Does.  When is the last time you tried to get Williams-Sonoma to order you a fruit carving tool that isn’t in their inventory?  Did they look at you like you were an alien?  Did they have any clue what you were talking about?  If you came into our store, we would sift through some catalogs from our vendors looking for what you want.  We might have to call you back the next day, but we will research it.  When it turns out that the tool sells for $8 and we just spent an hour looking for it, we still order it for you even though we spent more than double the price of the item in labor to locate it.  But do bear in mind that our vendors have minimum order requirements so it may take us a few weeks to get it for you since we have to order $300 worth of product from them to get your $8 widgit and we operate on a tight budget and just don’t need more widgits today.  This, my friends, is called personal service.  You don’t get this at the National chains.  But it will cost you some patience.
4. We Don’t Tell You What We Pay for Products Because You Don’t Get It.  Wholesale pricing information is held pretty close to the vest of those of us in the trade.  This isn’t because we are setting out to rip you off and pad our checkbooks; this is because we know you don’t understand the complexities of the pricing structures and we don’t have time to explain it to each and every customer – and we are trying to keep the doors open.  I am explaining it now, through this blog post.  Are you listening?  Your $8 widgit cost us an hour direct labor plus the wholesale cost of the widget itself.  There will be additional labor to prepare the purchase order, pay the freight, verify the shipment when it arrives, unpack it, take the cardboard to the dumpster, receive the product into our inventory, print and apply the price tags, and figure out where to merchandise the other widgits on the sales floor.  Then we have to call you to tell you it has arrived and pay the fees for processing your credit card transaction.  Your $8 widgit cost us a lot more than what you paid for it.  But we are happy to do it for you to earn your loyalty; we are investing in you as our customer in the hope that you will come back and buy some other things from us and that eventually our investment will pay off.  I will tell you this much:  the percentage of profit is about the same for most of the products we sell in our store (package beer and wine has very little profit in it, so that’s the exception for us; by-the-glass beer and wine can be profitable for restaurants and they rely upon their bar to pay some bills, so have a drink with dinner).  You can rightly conclude, then, that if all we are selling are $5 and $10 items, we are not making enough profit to pay the bills unless we are selling a bazillion of them.  When you buy a set of cookware? That might pay half the electric bill for one month.  Buy more cookware.  Please.
3. Small Business Owners Don’t Get a Paycheck Every Week.  In fact, many small business owners don’t get a paycheck at all.  They take just enough money out of the business to pay their mortgage and expenses at home, and many don’t have health insurance for their families.  They have to live like this because it’s a never-ending cycle:  you have to have product to sell in order to make money; it takes money to buy the product; and round and round you go.  Why not cut expenses by closing in slow times, you say?  If my store is not open when you, the consumer, want something from us, you will go elsewhere and probably not come back because we are not open regular, reliable hours.  We do have seasonal hours based on those norms we mentioned earlier in number 6, but if there is no foot traffic on a given Thursday, I can’t just close and go home.  What about that one customer who comes by at 5pm?  The risk is too high.  So even when business is very slow and revenue is at rock bottom, I have to be open, pay my staff (because I can’t work 24/7), and order product for when you do come in to shop.  Sometimes there isn’t any money for the owner to pay themselves.  Imagine this situation continuing for a couple months (while you are on vacation and not shopping in our store).  Small business owners may have had some money when they started the business, but chances are they don’t have any money now that isn’t tied up in the business.  Why do they do it?  To be their own boss, to make their mark on the world, to forge a trail for others to follow, to follow their passions, to live out their dreams.  It is their chosen employment, but the pay and benefits suck.
2. When you Demand a Discount or Play the “Use and Return” Game with Products, You are Taking Food out of the Business Owner’s Mouth.  Literally.  Review numbers 3 through 10 above.  Restaurants probably suffer a bit more with this than other retailers, but we all deal with it.  Many National retailers have a policy that they will take any return you bring them, no questions asked.  They can afford to be liberal with their return policy because they have a volume of sales that renders the effect of their relatively small percentage of returns negligible to their bottom line.  What did she just say?  Big box stores are unaffected by you wearing a dress to a wedding and returning it for full credit, stains and all.  They can take it.  But when you do that to a small retailer, and get belligerent when they point out the stains on the dress you swear you didn’t wear, you box them into a corner – and don’t you know it!  You count on it.  The underlying threat is, “I won’t shop here anymore if you don’t give me my money back, and I’ll tell all my friends how rude you were to me, too.”  At a restaurant, this strategy is often employed thusly:  “Waiter, my <half-eaten> steak is over-cooked.  Please take it back.  Oh, and I want it taken off my bill.”  In that moment, retailers/restaurateurs must make a judgment call.  Me, I usually opt for the less-traveled road:  “Oh, I’m sorry that pan didn’t make your omelet the way you wanted.  But since you’ve used it and it has the marks to prove it, I cannot take it back and re-sell it.  Therefore, I cannot offer you a refund.  I will happily give you a gift certificate for $20 for your inconvenience.”  Go ahead, tell your friends.  I will not be held hostage by someone who clearly wants something for nothing.   I want you to be happy, but I will not be extorted – I simply can’t afford it.  Now if your pan had a manufacturing flaw, I will happily take it back.  But once you’ve used a perfectly good pan, you are out of luck.  If you eat half the steak and then complain, you should pay for it.  Period.  If you can’t afford to pay the bill, eat at home.
1. We Need You to Realize Our Dreams.  You browse my store and say how lovely it is and how you love my products.  Then you go to Bed, Bath & Beyond to purchase your cooking tools.  Was it something we did?  Was an employee rude to you?  Did we not have what you were looking for?  Was it the price?  Why didn’t you buy from us?  If you had taken a minute to tell me, I might have been able to apologize/re-train my employee/order you what you want/give you a discount.  Refer back to number 5 – the crystal ball is broken.  But we want to earn your loyalty and offer you what you need and want.  We cannot stay in business if you don’t buy from us.  If I can’t get you what you need, I might be able to recommend someplace that can.  Hell, I’ve even been known to give free samples of things to people to meet their needs when I am out of stock of a product and have a sample on hand.  I was out of butcher’s twine once and gave the guy a couple yards from my ball in the cooking school kitchen.  I will do almost anything I can to take care of a customer and help the owner of our store stay in business.  But if you don’t shop with us and don’t tell me what you want, I can’t do either.  Buy local, so that we can continue to offer you a choice.  The big guys will not ask you what you want, they will only follow the money.  We want to know you and offer you the best quality possible for your money.

Thanks for stopping in.  Please come back!





The Top 10 Reasons I am a “Regular”

17 05 2012

I’m off to do good for others today.  So while I am out, here’s a little something for you to digest.  I look forward to your comments!

Since we all know I don’t have a life, I thought I’d take some of the copious time on my hands to write about food from a different perspective:  The Dining-Out Experience.

No, I have not gone off half-cocked and appointed myself a culinary expert.  This isn’t about the food.  Well, OK, it isn’t all about the food.  It’s about the total package of the dining-out experience from the perspective of a customer.  I happen to be an educated consumer: I have owned my own small retail/service business; I have cooked for groups and for people in their homes; and I continue to teach cooking classes in my semi-retirement.  So I know food.  But I am not a culinary school graduate and have never owned a restaurant – so I may not have credibility with those that are and do.  I am just a smart consumer with a good palate who knows how to properly wield a knife.  That makes me at least as qualified as anyone else to write about what keeps me coming back to certain restaurants and never returning to others.  In spite of the credibility issue, there just might be something here that could be of use to a restaurateur should they choose to pay attention.

I’m focusing on the positive here, so you may have to read between the lines to understand why I am not coming back to your restaurant if that be the shoe that fits.  So let’s begin, shall we?

The Top 10 Reasons I am a “Regular” at your restaurant, Letterman style, are:

10.  The décor, lighting, music, and temperature are moderate and comfortable.  You are firm in your identity and don’t distract me from the food with ridiculous wall murals, hideous paint colors, or objets d’art hanging over my table at eye level.  Your décor befits your brand identity.  You know that: lighting that is as bright as a grocery store or as dim as a movie theater; music that is so loud I have to yell at my companions; and a dining room that is too hot or too cold really turn me off.  You have managed to master these elements of ambiance and I am always comfortable here.  I’m here for the food, after all, not for a nightclub experience.

9.  You never fix things that aren’t broken.  I have been eating the _________ at your restaurant for a couple years now, and it’s my favorite thing on the menu.  I went to one of my other favorite places recently and ordered my go-to dish from their menu.  When it came out of the kitchen, I didn’t even recognize it!  And the taste?  Not good.  I could understand removing it from the menu to add something else, but they really shouldn’t have changed it.  I’m guessing they got a new cook and he just had to put his stamp on things.  But you pay attention to your sales history and customer feedback and make those kinds of changes based on facts, not personal whims.  So I know your food won’t go downhill like that.

8.  You always make it right with me.  Everyone makes mistakes once in a while, and when you do you make it right.  Whether offering a do-over, another item from the menu, a complimentary dessert, or just removing the item from my bill – I always leave happy.  I was in this other place not long ago – a very highly reviewed place here in town – and they overcooked my entrée (really, they killed it).  They offered to make me another, but I declined because I was running late and was hungry.  So I ate what I could of it and paid full price.  I was a bit put off that they didn’t offer a discount and have not been back.

7.  You make the best ____________ in town.  My friend had your signature dish when we came in together for the first time.  I had a couple of bites, and had to agree with her that it was really good.  I came back to have a whole order of it to myself.  I have tried most of the things on your menu and still think this is the thing you do best.  Your place is my go-to entertaining spot when I have out of town guests because the _________ is reliably good – and the service, too (see # 4).

If your dining room is empty, read on.

6.  Your menu suits you.  Your name, your décor, your logo, your advertisements, your location – you know, your brand identity – is reflected in your menu.  One of the places I won’t ever go back to again has an Irish name (complete with shamrock in the logo), a dark, confused décor (diner meets tavern meets just plain old), and a completely Italian-American menu.  The menu was also six pages long – that’s just ridiculous.  You aren’t like that at all – I know what to expect when I come into your restaurant, your menu is two pages, and you prepare it all consistently well.

5.   I am greeted upon arrival by someone friendly.  It might not be the host, who may be off seating other people.  But someone is always at the door to welcome me and, if need be, beg my patience whilst you seat the parties in front of me.  I really dig seeing that friendly face who has remembered my name now that I am a regular.  (One favorite breakfast place is small and their server greets me from across the room with a “Hey there! Sit wherever you’d like.”  That’s the diner equivalent of being met at the door and is totally awesome!)  I was just bragging to a friend about how you know me and always try to give me my favorite table.

4.  I am always served promptly, and requests to take my meal slow are no problem.  No, it’s not an oxymoron.  Prompt service after seating makes me feel important.  When I want to take my time and not rush through my meal, you are happy to let me linger over conversation with my companions and a bottle of wine.  You are all about happy, repeat customers, not just numbers, and I have never been rushed so that you can reseat my table.  I reward your servers for their patience, though I know that not all customers do.  But you do the right thing regardless and it keeps me coming back.

3.  It is clean.  The cracks, crevices, baseboards, restrooms, bar, chairs, tables, menus, salt & pepper shakers – the whole enchilada.  Not just at opening, but also at 7:30PM, when I excuse myself from the table between courses (for my fellow diners, this represents peak dinner rush to those in the biz.  But you probably knew that since that’s your preferred time to dine out).  And I tell my friends how clean it is.

2.  You only hire quality people and you take care of them.  Oh yes, I can tell.  Ever been waited on by a bartender or server who is not feeling the love?  It shows in many ways.  Sometimes it is evident in the new faces you see every time you go back, but often one visit tells you all you need to know.  No smiles (or one made through gritted teeth), that look of exasperation, slow service, poorly cooked food, dirty surroundings, oh – silly me.  I’m repeating myself.

1. The food is always good.  I say again, I am here for the food.  When you make a mistake, you refer to number 4 above.  That leaves me in a position to say that the food is always good.  No complaints here.  You make about 5 starters, 12 entrées, and 5 desserts and they are all good.  Compared to other places, I would say that your food is great.  Maybe it’s because you just offer relatively few things compared to some places, so your cooks are able to focus on preparing them really well.  All I know is the food is good and I keep coming back.

<insert pregnant pause>

For the restaurateurs out there, I’m going to let you marinate in that for a bit.  Knowing me, I’m sure there will be some follow-up blog post in the future.  If you disagree or find fault with anything I’ve said, feel free to let me know.  But before you do, bear in mind two things:  1) Sometimes we protest the loudest about things that hit a little too close to home (I call this the mirror effect – seeing the truth can be very uncomfortable); and 2) The customer is always right.

For my fellow diners, I encourage you to chime in with the things that keep you going back to your favorite restaurants.  I’d like to hear what makes you a happy “regular” customer!








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