Crunch Time

When facing economic uncertainty, it is essential that pet specialty retailers find creative ways to cut operational costs without killing sales.


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‘Flat is the new up.’ This is the reality facing businesses all across the country as the ongoing economic crisis continues to stifle consumer spending and pushes retailers to the edge of profitability. While it is true that pet stores have generally fared better than their counterparts in other industries, flat sales and rising operational costs are putting the squeeze on these retailers.

“Right now, it’s an understatement to say that pet retailers are in an economically challenging environment,” says Clayton Harvey, managing partner of Lexington, Ky.-based Bluegrass Barkery, a pet store that sells natural pet products and supplies. He says that while his pet store may not be hurting as much as many other retailers in the area, his profit margin isn’t what it used to be. “Two or three years ago, we had a 30-percent margin for some of our higher-end natural pet products,” Harvey explains. “Now we are happy to have a 25-percent margin.”

In the face of this formidable challenge, pet stores have been forced into survival mode, protecting their bottom line by trying to improve operational efficiencies. To this end, many retailers are asking themselves how they can cut costs in a way that does not diminish the store’s level of service, customer base or revenue stream.       
   
The importance of preserving an independent pet store’s competitive strengths while cutting overhead costs cannot be overstated. After all, most independent pet retailers cannot stand toe to toe with the big-box stores and mass merchandisers like Wal-Mart unless they focus heavily on quality products and best-in-class customer service. With this in mind, Maggie Johnson, co-owner of Sojourner Farms, a Minneapolis, Minn.-based manufacturer of food, treats and supplements, is one of many merchants who says that expenses must be cut in ways that do not compromise quality.

Unfortunately, far too large a number of retailers respond to the challenge of cutting costs like someone navigating through jungle foliage with a machete. They slash without much thought and little planning. For example, one of the first areas that many retailers look to make cuts is in the workforce, but that can be a big mistake. “By focusing on shrinking the workforce before making every possible effort to improve operational efficiencies, a pet retailer may be actually adding to its financial woes,” says Tom O’Leary, a spokesman for Green Dog Naturals, a Santa Cruz, Calif.-based pet supplement manufacturer.

The goods news is that there are many areas of retailing, from marketing to insurance costs, in which opportunities for savings can be found without compromising the quality and service that sets independent pet stores apart from competitors.


The Energy Bill                                                                                                                                            
A store’s energy bill is one area in which overhead can be reduced relatively easily. Retailers should be proactive and take steps such as installing a programmable thermostat and setting it at a reasonable temperature, using better air filters to help the air conditioning unit run more efficiently, or making sure that the AC does not run at full capacity while the store is closed.

Pet retailers can also reduce energy costs by evaluating the type of lighting they’re using. “We are working with our electrician to put in 5/8 lighting that will not only provide better light, but will be much more efficient and less expensive to run,” notes Sally Trufant, co-owner of B & B Pet Stop in Mobile, Ala.


Cutting Communication Costs
Is phone service taking a bite out of the store’s operating budget? If so, there is no reason why a retailer has to stay with his current service provider. “Don’t take your telecommunications service costs for granted,’ Harvey advises. “Take five or 10 minutes each month to review your phone bill. Shop around, if you are not happy with what you’re paying. The telecommunications industry is competitive, and the service providers all want your business. Huge savings can be had.”

When reviewing their stores’ telecommunication costs, retailers should consider the amazing advances in technology. For instance, a pet store may not need to use a traditional landline. Check out VOIP (Voice Over Internet Protocol), which is basically phone service that uses the Internet. Switching to VOIP can get rid of a retailer’s expensive long distance phone service and system maintenance fees. Yes, there are some upfront costs for hardware purchases, but those costs can be recouped in months through cost savings.

Written correspondence is another area in which some cost can be removed. Why continue relying on snail mail when e-mail can be a more effective and cost-effective way to communicate frequently with loyal and new customers, says Pam Foster, a Eugene, Ore.-based consultant who specializes in helping pet marketers do business online. “A pet store can offer tips, new store items, season coupons and other shopping incentives without spending a dime on printing and mailing,” she says.


Reduce Shipping Costs
Shipping costs can add up, especially when a retailer uses a third party, like Federal Express or UPS. Bluegrass Barkery saved money when it began using the priority mail service of the U.S Postal Service. “Recently, I made a shipment via priority mail and it cost $5.05,” Harvey says. “The same shipment would have cost me a little more than $11 if I had used UPS. So the cost was about half. And I’ve found priority mail to be reliable.”


Save on Supplies
Retailers should think like a consumer when they buy supplies and look for discounts whenever possible. “In this economic climate, there is no reason why a pet retailer has to pay the full price for anything,” Harvey says. “Office Max and Office Depot regularly send out flyers and discount cards that can cut as much as 20 percent off a purchase.” You can also check their websites for special deals.


Handle Inventory Wisely
If a pet store doesn’t have a product in stock, it can’t be sold, so retailers should not try to cut costs by scrimping on inventory. “It’s important to have fairly stocked shelves so customers maintain faith in your store,” Trufant advises. “If your store looks like it’s going out of business, customers will be hesitant to come and buy.”

However, pet retailers can still save money by adjusting their buying process to take full advantage of supplier discounts. “Manufacturers are also hurting,” Harvey says. “I don’t know of a single manufacturer that doesn’t offer a monthly special in some form. The discounts can be as much as 30 percent. That gives a pet retailer an opportunity to buy in bulk and stock up. So get in the habit of buying big ticket items when manufacturers offer discounts.”

Diane Dewberry, the owner of The Healthy Animal, a pet health food store in Pembroke, Mass., agrees that taking this approach can have a significant impact on a retailer’s bottom line. “Buying in bulk is a very simple way for a pet retailer to increase their margins by 20 percent or more for items manufacturers are promoting,” she says.

A pet retailer can also improve inventory management by featuring fewer brands and promoting them more efficiently, says O’Leary. “It’s a well understood principle of retail management that too many choices can overwhelm the consumer and increase the dollars that retailers have invested in their inventory,” he explains.


Scrutinize Insurance Costs
Insurance costs make up another area that pet retailers should assess regularly to look for savings. For a comparison of health insurance plans, check out the websites for these organizations: American Health Insurance Plans (www.ahip.org), the Insurance Information Institute (www.iii.org) and the Life and Health Insurance Foundation for Education (www.lifehappens.org). In addition, insurance rates can be compared at ehealthinsurance.com.

Dan Weedin, a Seattle-based insurance and risk management consultant, advises pet retailers to check out Health Insurance Accounts (HSAs) when they’re getting quotes for medical insurance. “HSAs offer higher deductibles and can lower costs,” Weedin says. “Employees will have to take more responsibility for their medical costs, but they will gain greater flexibility. Meanwhile, pet retailers can save on premiums.”

It’s also wise to bid out property and casualty insurance every two years. “Insurance is still a buyer’s market, and if pet retailers choose not to get competitive bids, for whatever reason, they are undoubtedly leaving money on the table,” Weedin explains. “In my experience, bidding on insurance regularly keeps costs down and protection up.”

Perhaps at the heart of cutting medical insurance costs is making sure that the store has a healthy workforce to begin with. Research has shown that, on average, wellness programs promoting a healthy workforce can result in up to $225 in savings per worker per year. Wellness programs include activities such as stress-management seminars, anti-smoking campaigns and free fitness classes.


Market More Effectively & Chop Hidden Fees
Pet retailers should routinely review their marketing strategies to see if they can be made more effective. For example, when designing a direct-mail promotion, pet retailers should include a coupon or special code that customers must use to take advantage of a special offer. This will enable the store to track the promotion to see if it’s working. “Dump any marketing effort that isn’t generating business,” says Shel Horowitz, a marketing consultant and author of Principled Profit: Marketing That Puts People First.

Credit card companies and local banks can take an unnecessary chunk of a store’s operating budget, if the retailer isn’t careful. “We have an excellent relationship with our bank and our fees are very low, but we recommend that pet retailers talk to the branch manager of their bank,” Trufant says. “They may be able to negotiate bank charges and get a better rate.”

Harvey suggests that retailers look at what rates they are getting from your credit card company, then shop around. “You can say to the credit card company: ‘We are getting this current rate from this credit company, can you beat it?’ Credit card companies will work with you, so be aggressive. The charges can add up,” he adds.


The Bottom Line
In the final analysis, nothing should be taken for granted when it comes to cutting costs, and no stone should be left unturned. This is a lesson that Trufant knows well. After a recent renegotiation of her store’s waste removal contract, she decided to take a closer look at a variety of the store’s invoices. 

“We reworked the agreement with the oxygen company (we fill fish bags with oxygen). We also traded in our old copy machine and are now leasing a newer, cheaper one,” she explains. “When we took a good look at our payroll expenses, we realized we weren’t using some of the options for which we were paying, so we cut costs there, too.” 

Cutting costs should be an ongoing process. But at the same time, pet retailers should be careful to always ask themselves: “In cutting this cost, am I sacrificing value and service for the bottom line?”


Ron Chepesiuk is a South Carolina-based freelance business writer. He can be reached by email at
dmonitor1@yahoo.com.

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