Secrets to merchandising, sales commissions and wall paper:
There was a wildly popular chain of small department stores in New Zealand that was managed and operated by the person who founded it over 40 years ago. The chain of stores was so successful, a corporate conglomerate bought it out and the founder left the business a wealthy man. Several years later, the very successful chain went out of business.
The following are three short stories with three big lessons of what happened after the corporate titans acquired the business, as told by the founder. (His name and that of his department store has been omitted, as requested).
The Silverware Story:
The housewares department carried twenty different silverware sets, all of which were beautifully designed. However, only four designs contributed to 80% of the sales. (Remember the 80/20 rule, know as the Pareto principal? If not, read the earlier post titled “Craving For Loyal Customers”). The rationale for such a large choice of silverware was that had there been only five or six silverware options, the consumer would have been disappointed in the limited selection and would have gone elsewhere to shop. That would lead to the customer buying one of the four popular designs somewhere other than their store! The store’s goal was to have the consumer think they offered the largest choice and that there couldn’t possibly be a better selection anywhere else; thus buying one of the four designs at their store.
New management came in and dramatically cut the selections, eliminating the sets that were poor performers. Sales dropped…and they weren’t sharp enough to figure out why.
The Paint Salesmen
The paint salesmen had been with the founder of the company a long time. Some even started with him as the stores spread across New Zealand. They were highly compensated. The owner said they weren’t really salesmen; they were consultants. “I know you want to add another room to your home”, one paint consultant would tell a long time customer, ” but remember when you made that last room addition, we pointed out any more construction would need another load bearing wall.” Naturally, customers bought a lot of their supplies and all of their paint from the store.
New management could not understand why paint salesmen were so highly compensated and pensioned them off in favor of young inexperienced workers which cost them much less. Paint and hardware sales dropped…and they couldn’t figure out why the department was in the red.
The Wall Paper Factory (My personal favorite)
The 80/20 rule did not work in the wall paper department. When it came to wall paper, 90% of New Zealanders, at the time, bought beige. But the people who ran the wall paper factory, which was owned by the department stores, traveled the world every year in search of the latest colors, designs and fabrics. The amount of money spent on those trips was staggering but the old-time retailer did not focus on the money. He boasted that they just needed to focus on the customer and the money would take care of itself. The net result was that people would come to his stores and literally say “ooh” and “ahh” and be enamored by the beautiful and colorful wall paper department. After hours of looking at swathes and samples and debating what would look best in their homes, customers would select the beige designs .
New management sold the factory to save money. Sales in the smaller but more efficient wall paper department became unglued and the home decorating department unraveled.
New Zealand’s once popular small chain of department stores went out of business.
Focus on the customer and the money will take care of itself.