What’s the best way to grow margin without hiking up prices?

by Steve Pruitt

Q: I read your article on how we’re unlikely to see top-line growth next year, due to a pending slowdown, and your recommendation to focus on margin growth instead. What’s the best way to do this without hiking up prices?

Steve Pruitt: There are a few methods to follow in the quest for higher margins:

1. Vendor relations — Talk to your vendors about your current margin and the company’s goals. Vendors can help in many ways, such as better pricing, markdown support, and swap opportunities, to name a few. You have to start these conversations before you make the buy.

2. Increase your sell-thru percent—This is a simple concept, but hard to do. It takes discipline. To increase sell-thru, take fewer markdowns and commit to great merchandise planning. (Not just good, but great!) It is all about the timing of deliveries.

3. Finally, don’t over buy – ever!

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  1. The best way to grow margin is to have merchandise in the store that customers actually want to pay full price for merchandise that reflects their lifestyle more so than fashion trends.

  2. Make sure you are dealing with vendors that are not in direct competition with you on Amazon, Zappos, or through their own websites. If they are, consider having agreed upon ending margin targets and/or return arrangements.

  3. That is your first suggestion! I would like to see how many vendors agree with this, and can take another punch to the gut. If the vendor community would have to offer more support, prices would increase to support that margin contribution, increasing pricing and raising retails! This is not only a bad suggestion, it’s the lazy way to falsify a healthy business. Buying right product from good vendors is the first thing. Not buying more from the companies that got them there in the first place, likely because they give GM support. If this continues, there will be no one to buy from, because the vendors will be out of business.

  4. If vendors continue competing with the retailers they are supposedly “partnering” with by selling directly to the consumer, there will be fewer stores left to sell to because more retailers will be out of business! This practice is not beneficial to the independent retail community. Big Problem!
    I have worked with independent retailers for the past 40 years and know their challenges. This practice is near the top of the list.

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