Irrespective of which how often you visit charity shops or how involved you are within charity retail you will not have failed to have noticed that charity retail is changing. Most charity retailers have invested heavily in their shops in terms of technology (modern EPOS systems) and appearance (posh shop fit outs) and most now look and feel more like traditional retail shops rather than the charity shops of the past. While the days of smelly and tatty charity shops are disappearing fast the changes have not resulted in greater profits in fact profitability is falling year on year generally. There are contributory factors like increased costs and increased competition but the undeniable fact is that most charity retailers are not maximizing sales within their shops. There are many excuses banded about by ‘experts’ for the indifferent performances within some charities but the facts are that very few charity retailers use the science of good commercial charity retail management to maximize sales.
Technically the charity retail market is at the end of its maturity phase and moving onto its decline phase as demonstrated on the lifecycle model. Once the charity retail market moves into decline then only the best charity commercially astute retail operations will thrive, the rest will struggle, reducing the profits for many charities. During the years of rapid growth charity retail was an easy vehicle to generate revenue for charities. Today however it is very different, charity retail is arguably going through it’s most challenging period since Oxfam opened the UK’s first charity shop in 1948 some 70 years ago.
The strategies that the vast majority of charity retailers are currently using to improve sales are not scientific and are very unlikely to increase profits. These strategies are generally not commercially astute or ensure their charity retail operation will thrive in the future. Some charity retailers are simply increasing the number of bought in goods, expanding their retail estate or opening some specialist shops. None of these strategies alone will ensure profit growth.
While doing something different is better than doing nothing different there is still a large differentiation between charity retailers and other retailers in terms of how to maximise sales in a difficult market. In a sentence all the leading retailers use ‘the appliance of science’ to maximise sales, which starts with using data.
Amazon for example track your viewing of their website and if you don’t buy they email you based upon your viewing history. The major supermakets use sales and profit data to use their retail space scientificially based upon individual product lines to maximise sales. Charity retailers however generally don’t use data to improve sales, in fact most use the same methodologies that were sucessful 15 years ago but unfortunately, charity retail has changed. Most charity retailers don’t even fully utilise the sales related data generated by the EPOS systems (even the most basic checkouts generate sales data) to maximise sales.
There are a number of industry recognised benchmarks that are used by some charity retailers to measure their performance against the industry average. Whilst many of these are generated by the Charity Retail Association and the Civil Society when these benchmarks are used in isolation, which is often the case the results can be very misleading.
The reasons why charity retailers dont use ‘the applience of science’ to improve sales, when they have access to the data is most likely to be a lack of expertise or competence. When you consider the low amount of personal development all the people employed within charity retail recieve and then compare to other retailers, the difference is immence. According to the Charity Retail Association 87% of charity retail staff receive product pricing training and 80% of charity retail staff receive training on spotting high value donations. On the surface that appears to be is a considerable investment however, the Civil Society research have found the average spending per head on training was around £67 a year per member of staff. This is far too low, and the majority of this is likely to be used for compulsory training, and not invested in training of good charity retail commercial management to develop the use of ‘the applience of science’. When you consider that charity shop management can make the greatest difference on the performance of a charity shop their training is being seriously neglected and the question the CEO’s should be asking is ‘Why do we fail to invest in the training of our retail management in good commercial management ?’.
Traditionally one of the most popular indicators that is used especially by financial directors is profitability percentage. However, while this remains a reasonable measure of performance it should never be used in isolation. Profitability does not measure actual profit potential of the retail business just the costs as a percentage of sales. Using only profitability as the measure of performance can result in believing that the retail business is performing okay, however with rising costs and sales under increasing pressure if profitability is used in isolation it is likely to result in the business slipping behind the competition and falling profits in the future.
To protect the current profit or indeed to grow the profit from retail, the time for procrastination needs to stop. There is no point continuing expanding the retail estate until its performing to its potential. Charity retail businesses need to do these five things to stop wasting revenue.
- Use the data they are producing.
- Use industry leading best practises.
- Use industry leading commercial analysis and commercial strategies.
- Train the retail team in commercial management as a priority.
- Measure performance based upon profitability and commercial analysis after first 4 actions have been completed.
Who are Skyline
Skyline is a London based boutique consultancy, who are the UK’s number one charity retail consultancy. We offer a wide range of different services from advisory to hands on delivery, from strategy development to strategy delivery, from training to leadership. We typically become the trusted advisors by working in close partnership with our clients to deliver improved business performance by combining original thinking, astute analysis and practical solutions. We have a track record of producing outstanding sustainable results.