Oh no! Sales are way down this week! Sales were down last week, too! You should probably issue some coupons right away, since customers are getting tight with their money and aren’t spending it on drycleaning.
Have you felt this pang of anxiety over a few weeks or a month in which sales didn’t meet expectations? You have a deep-seated need to take action — any action — to stem the tide, communicate with customers, lower prices, increase discounting or something.
No matter how painful it may be, however, waiting tings out may be the best course of action. But it requires you to take a good, hard look at your sales, sales history and the external factors that affect your sales to make a good business decision for your business’ long-term health.
Understand your environment. You can never understand consumers entirely — they’re fickle, complex and diverse. But you can take a snapshot of their behavior with the information available.
First, understand what it means to say “sales are down.” Is this from last week or from the same week of last year? Is this a consistent trend, or a blip on the radar? If it’s a trend, is it a two-week trend or a real, six-week trend?
There could be external factors to the weakness. Did the holidays fall at different times last year? Were there extreme weather conditions? Remembering these factors clearly can be a stretch, but historical information like this can be very important in creating a good foundation for decision-making.
Next, consider not only whether sales are up or down, but also how volume and pricing impact a downturn. Did you institute a price increase and see volume fall by more than the increase? Did you institute a price increase, but never see an increase in revenue per piece due to discounting? Did you leave prices the same and see volume drop anyway? Knowing these things can help plan your next strategy.
Look closely at your operation. Has anything changed? Does your service still meet customer expectations? Is the product delivered on time? Is it of the same quality as before? Are your employees meeting customer expectations?
Don’t just off-handedly answer “Yes” to these questions — verify your gut feeling. Look at the on-time delivery information in your point-of-sale system. Measure your quality and survey your customers. Drycleaning is a tough business, and critical components can fall apart quickly if they aren’t tracked.
Finally, look carefully at your external environment. It isn’t enough to say that the price of gasoline is going up and therefore, drycleaning sales are falling. We know that the majority of drycleaning customers represent only about 20% of the population. How do these people choose to spend their income?
Do they want to lengthen garment life? Do they still need to look good at work and worry about job security? Are they still short on time and therefore need pickup-and-delivery service? Perhaps some of this has changed and perhaps it hasn’t. The real question is whether changing your pricing or advertising will make a difference.
Work through the panic. You’ve been a good businessperson. You’ve raised prices consistently over the years, and piececounts stayed flat or fell only slightly. Your operation still functions well, and there are no unpleasant surprises in delivery or quality. Your customers seem happy, and yet piececounts continue to fall. What to do?
Consider your options in light of your customers’ perspectives. Customers might spend more if drycleaning was cheaper. If you cut prices by 20%, how much more will piececounts go up — 20%? The plant would still have to process all the work. Your costs might go up 10% to 20% due to increased labor, supplies, fuel and hangers. Will you be better off, or worse?
Just to take a simple example, start with an average revenue-per-piece of $6.00. Slash prices 20% across the board, and that number is now $4.80 per piece. At the same time, volume increases 20% because of the price cut. Even with this very significant increase, your total revenues fall.
In addition, you’ll incur higher costs on supplies even if you maintain the same payroll (which is possible, since increased volume often fills staffers’ downtime). However, a 20% increase in volume is significant, and labor could go up, too.
You can design an unlimited number of scenarios to reflect a strategic decision. The important thing is to understand what, exactly, is at stake. It isn’t a one-off decision to lower prices or to change your discounting strategy significantly. It is a critical, long-term business decision because once customers get used to a pricepoint and value strategy from you, it will take a long time to reorient them to another one.
From a broader point of view, businesses often take this “shoot from the hip” approach in the United States, jumping from one solution to another to solve an immediate problem. Other Western countries tend to take a longer-term perspective.
“I’m here today, I’m here tomorrow, I’ll be here a year from now,” these operators say. “I can take the time to understand the environment, plan any changes necessary and implement them thoughtfully. I don’t want to shock customers and lose their loyalty, I want to improve my operation constantly in light of my long-term perspective of the market and my place in it.”