Article Number : 2871 |
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| Date | 1/21/2008 9:25:14 AM |
| Written By | LGM & Associates Technical Flooring Services |
| View this article at: | //floorbiz.com/BizResources/NPViewArticle.asp?ArticleID=2871 |
| Abstract | By Steven Feldman Houston—A soft economy should not deter Flooring America/Flooring Canada members from increasing their sales and profitability. So said Vinnie Virga, president of Flooring America, at the group’s winter convention held here earlier this month... |
| Article | By Steven Feldman Houston—A soft economy should not deter Flooring America/Flooring Canada members from increasing their sales and profitability. So said Vinnie Virga, president of Flooring America, at the group’s winter convention held here earlier this month. To that end, members were shown an array of concepts designed to help them withstand the slowdown, most notably creating customers for life and raising margins. Creating customers for life is critical because a repeat customer is the easiest type of customer to sell. “They are not looking for discounts, and you’ve already earned their loyalty,” Virga said. “This is done by offering exceptional customer service.” The hard numbers accentuate the importance of creating customers for life: • 40% of Flooring America customers are repeat customers. • 25% of Flooring America customers are based on referrals. So how does a retailer create a customer for life? By providing an incredible shopping experience, Virga said. Hence the launching of Vision 2008, the group’s new showroom platform designed to establish the perfect environment to take care of today’s female consumer. “Everything has been designed to earn and hold her heart and trust,” Virga said. “Trust built on value and experience.” Available for the first time to members after a year-long, three-store pilot, Vision 2008 offers a complete showroom experience and allows the group to create a national brand that can be replicated across the U.S. and Canada. “Vision 2008 will emotionally connect with the female consumer because it has the right look and feel,” Virga said, “and it conveys that we know who she is and what she wants. It’s bright, organized and professional. The showroom will inspire her and give her confidence, and she will feel good about buying. Our research says she will feel like she belongs.” He added that if customers are happy with their shopping experience, then the retailer does not have to scrounge at the lowest possible margin. Vision 2008 also allows Flooring America/Flooring Canada retailers to better compete for discretionary dollars. “Our customers are not comparing us to other flooring stores; they are comparing us to other places where they can spend their money,” he said. “It comes down to new floors or a new TV or new sofa or trip to Cancun. So retailers need to be comparing themselves against everyone.” The cost to convert an existing showroom to Vision 2008 is around $150,000, but members do not have to do everything at once. A retailer can do the lights this year, the floors next year and the displays the following year. “The program was designed as a kit of components,” Virga said. “Pick and choose what makes the most sense.” What’s more, Vision 2008 was designed so old displays can live next to new ones. While the $150,000 may seem daunting, if the pilots’ early returns are any indication, a retailer will make back the investment in no time. In illustration, the two members who re-did their stores experienced a 20% lift in sales almost immediately. So if you take the average member who does $2.8 million in sales, assume 36% to 38% gross margin and a 20% sales increase, the investment will be made back in about a year and a half. Those who made the conversion could not be happier. “Before I thought I had one of the nicest flooring stores in town; now I feel like I have one of the nicest retail stores overall,” said Kelby Fredericks, owner of the Flooring America in Denton, Texas. And Scott Steel, owner of My Flooring America in Webster, Texas, added, “The challenges we went through in the past few months have been definitely worth it. The level of professionalism has come up. And we have seen great reaction on the part of customers.” It all goes back to creating customers for life, the importance of which is illustrated in: 1. The average customer spends $1,800 every time she buys flooring. 2. She will buy flooring every four to seven years, which makes her worth $15,000 over the course of her lifetime. 3. If she tells two friends, her lifetime value is worth $45,000. 4. Given that the average Flooring America member writes 130 retail orders a month, that creates $2.6 million in annual sales. If each consumer tells two friends about her positive experience, sales can increase to about $8 million. “That is why creating customers for life is worth it,” Virga said. “That is where our future is.” The first step in creating customers for life is recognizing the customer has changed. “Customers want to trust,” Virga said. “They are more sophisticated, more demanding and have less time. Almost 50% of customers are shopping online before they come into the store. They want a company that can deliver. They want to be customers of a store that understands their DNA. They expect to have an experience. They expect to see prices. They want to know they made the right decision. “Given that, retailers must be prepared to cater to their needs. It’s not about selling them something; it’s about helping them create beautiful rooms.” The one mistake retailers often make is to focus on price. But customers, in reality, are driven by value. “If you make customers happy, they won’t waste their time shopping other stores in town,” said Deb Binder, vice president of marketing. “They won’t deal with poor service at home centers. And they will tell others about you.” Rob Elder, owner of Hillers Fooring America in Rochester, Minn., is a prime example of how building customers for life impacts the bottom line. Despite losing $2 million in builder business over the last two years, Hillers was up $1 million in 2007. How? It’s all about building incredible customer service, friendly salespeople and a clean, beautiful showroom. He also stresses the fundamentals, like consistent advertising. Increasing margins Despite the challenging landscape, 40% of Flooring America/Flooring Canada members increased their profitability in 2007 versus ’06 and half of those were up more than 10%. Why? “Because they are focused on increasing gross profit margins, cutting expenses, and buying through the system,” Virga said. “They also are taking advantage of exclusive brands and programs.” Those whose profitability is down need to be willing to step out of the box, Virga said. “They need to look at their margin, mix and expenses.” Increasing margin is paramount, especially with fewer customers walking into the store. Hence, the introduction of Profit Builder, an automated computer program that offers Flooring America/Flooring Canada members the ability to price more than six million SKUs with either their own margins or the pre-set margins. “We teach members our value pricing strategy, which allows them to get higher gross profit margins,” Virga said. The proprietary program makes the value pricing system easy to execute, where everything offers a margin in excess of 60%. At the same time, it is recommended that a third of the floor is always on sale with slightly lesser margins. This way the value-conscious customer gets great products at great value and the retailer’s margins are still protected. “This is a simple yet powerful concept that allows retailers to price each product where they can make significantly more gross margin on each product,” Virga said. “We have seen members go up 10% in margin in a month.” While constantly repricing a floor can be cumbersome, Profit Builder also generates price tags in a consistent format, creating a professional environment. “When you don’t tag your showroom, customers think either everything is up for negotiation or you are embarrassed that your prices are too high,” Virga said. Jim Fink, who operates multiple Flooring America locations in Pennsylvania, knew sales would be harder to come by in 2007, so the retailer raised prices and backed it up by incentivizing salespeople based on an increase in gross volume and gross profit. The result: His stores were up 22% in 2007 over ’06. |