A Model of Efficiency
By Mark Kalaygian
Published: November 1, 2011
Pet stores that can improve their performance in category management, product sourcing and staffing will be able to counteract some of the profit margin erosion that has plagued specialty retailers over the past few years.



Independent pet retailers are facing a classic squeeze. A combination of steady price increases and inelastic consumer budgets is quickly eroding profit margins in even the healthiest of pet stores, and there is no relief in sight. Making matters worse is the fact that, even for retailers that resist passing price increases on to their customers, realizing significant sales gains in today’s economic environment can be difficult, to say the least.

So, if a pet store’s sales are not increasing, and its profit margins are contracting, how can the operation staunch the bleeding, much less grow the business? The answer, for many retailers, is taking a good, hard look within their operations to find new efficiencies.

And make no mistake, there are efficiencies to be found. Even the most successful retailers can improve upon certain aspects of the way they do business. Oftentimes, it is the constant pursuit of these improvements that has made them successful in the first place. What these retailers understand is that a dollar saved through new operational efficiencies can be even more powerful than an additional dollar earned through sales. Consider this: For every dollar brought in from a sale, only a certain percentage is profit. But when a retailer can take a dollar out of the cost of doing business, it all goes straight to the bottom line.

What’s more, the operational improvements that can result from finding efficiencies will often directly help in growing sales by improving the customer experience.

Of course, even the process of finding efficiencies in a pet store must be one that is efficient itself. Sure, trading down on the quality of shopping bags behind the checkout or cutting back on how often the floors are polished will save a business some money. However, there are certain areas in which a retailer’s efforts to find efficiencies can have a much larger impact, both in terms of reducing costs and improving the store overall. Category management, product sourcing and staffing are all at the top of that list.


Managing the Product Mix
For most independent pet stores, category management is one area in which it is particularly important to ensure as much efficiency as possible. For these retailers, selling space is at a premium, so it is essential that every square foot is reaching its full potential. With this in mind, the sales performance of each product in the pet store must be reviewed constantly, and adjustments made swiftly and decisively.

“Make time to analyze your business,” says Jim Alvord, a former executive for Petco and the owner of JBA Marketing, Inc. in Escondido, Calif. “Each month, sit down and take a cold, hard look at your numbers. Understand what it is that you’re selling, and you will be surprised at how the action points will jump out at you once you delve into the data. It will allow you to exploit your best sellers more effectively, eliminate your slow sellers, and avoid duplication in your assortment.”

While building and maintaining a system for category management can be a daunting undertaking for small, independent retailers, there are resources available to help meet this challenge. For example, a well-designed POS system can be invaluable in tracking product sales performance (both overall, as well as seasonally), providing retailers with the raw data they need to create the optimum selection on their shelves. According to Alvord, by collecting this type of data and using it to make category management decisions, small, independent retailers can benefit from a strategy that bigger retailers have been leveraging for years.

“It’s a degree of sophistication that big companies with big budgets and big computer banks have seen the value of and continue to exploit,” he says.

A pet store’s distributor partners can also be a great help in category management. In fact, the right distributors may prove even more valuable than a POS system. Not only can they provide insight into the sales performance of products within a store, based on order history, they can also suggest products that have not yet been tried by the retailer but are doing well in neighboring stores. A good distributor partner can even go a step further and actually help devise an optimal merchandising scheme for the store.

“The distributor has the ability to know what is selling well and what isn’t,” says Bob Merar, president of Milwaukee-based pet product distributor General Pet Supply. “And we have the ability to do the plan-o-gramming for them, based on the best sellers, to give them an assortment that works to their best advantage.”


Streamlining the Supply Chain
Distributors can, and should, factor into a pet specialty retailer’s pursuit of efficiency beyond the role that they play in effective category management. In fact, the supply chain represents an area in which savvy retailers have an opportunity to make a significant impact on their bottom line.

Saving money on the direct cost of goods sold in the store is likely the first thing that comes to mind when evaluating a pet store’s supply chain. However, the way that many retailers pursue this savings may be flawed. Too often, says Merar, storeowners focus on shopping several distributors for the best possible price on a given item--a practice that he says undermines the very benefit they are looking for.

“If a retailers looks at it, they’re only saving a penny here and a penny there,” he says. “They don’t look at the amount of time it takes them to scour everybody’s special sheet or call the customer service center to see what’s on special. How much time is the retailer wasting on that instead of doing other things to make the store better?”

Instead of chasing pennies by jumping from one distributor to the next, retailers are far better served by consolidating as much of their business as possible with a single supplier. This strategy increases the importance of the store as a customer in the eyes of the distributor, and can ultimately result in better overall pricing through economies of scale or more promotional pricing opportunities. In addition, important retailer customers can often count on enhanced service and support from their key suppliers.

“If you become more important and create a relationship with your [distributor], you are much more likely to get your requests granted when you ask for it,” notes Michael Dagne, president of Moochie & Co., a pet specialty retail chain with 13 stores in Ohio, Indiana and Pennsylvania. “Of course, it needs to be a reasonable request, and you have to be able to back it up.”

Making the supply chain more efficient can also be accomplished by streamlining the ordering process itself. The practice of faxing in order forms to the distributors has largely gone the way of the dodo bird, and for good reason. The electronic-ordering technology available to today’s pet specialty retailer has made placing orders far more efficient. “Electronic ordering is critical, no matter how big a retailer you are,” says Alvord. “It’s the best way for businesses to communicate right now.

This is another area in which a good point-of-sale system can go a long way in providing efficiencies for a pet store, as they can monitor inventory levels and generate ordering suggestions. However, retailers do not necessarily need to invest in this type of expensive technology to take advantage of the efficiencies that come with electronic ordering. According to Merar, many distributors now offer their customers scanners that can be used to compile and transmit orders, independent of a high-priced POS system.

Another area in which retailers can find efficiencies within the supply chain is in the timing of their seasonal ordering. Over the past several years, retailers and suppliers alike have reported a fundamental shift in the way many pet stores order seasonal merchandise, particularly for the fourth-quarter holiday season. By all accounts, retailers used to be much more proactive in their buying for this season, doing the bulk of their ordering in late summer. Today, however, many pet stores have eschewed this practice in favor of staggering their orders deeper into the quarter. Unfortunately, this means that they are missing out on the steep discounts that most distributors offer on off-season orders.

“We’ve got programs that we offer for pre-season booking that are far better than if you buy as you need it,” says Merar. “If you’re looking for sweaters or coats, for example, and you book it in July--and it’s not shipped until October—you’re going to get a much better discount than if you were to buy it in October or November.”

Dagne is one retailer who regularly takes advantage of these opportunities. He says that he has placed orders for the fourth-quarter holidays as early as April, in order to get a great deal.

But while buying early can be a great way to save some cash on seasonal orders, the efficiency of such a practice will be subverted if the product does not ultimately move out of the store in a timely manner. With this in mind, it is essential that retailers strike a balance between ordering early and ordering smart.


Training & Deploying Staff
Staffing a small, independent pet retail operation is an area that is fraught with potential inefficiencies. Here, the battle is often fought on two fronts—scheduling and training.

Overstaffing a pet store during slow periods is tantamount to flushing money down the drain. Understaffing periods of high customer traffic will undermine the store’s biggest competitive strength—the ability to provide a high level of customer service. Complicating things is the fact that a pet store’s busy and slow times rarely, if ever, occur with the framework of a typical eight-hour shift. To adapt to this reality, many retailers have begun to rethink the way they schedule their staff coverage.

“To get people scheduled when and where they are needed, we’ve seen retailers move to a higher ratio of part-time, versus full-time, staff,” says Mike Steele, senior retail workforce management strategist for Workforce Insight, a Denver-based workforce management consulting firm. “And as much as you can tie that to data—when you have the most traffic in your store, or the most transactions—the more bang you’ll get for your buck, at least [in terms of customer service].”

For functions unrelated to customer service (for example, receiving product shipments, caring for live animals or stocking shelves), Steele suggests that retailers analyze each procedure and create a reasonable timeline for its completion, based on past experience. These timelines can then be used in scheduling the staff necessary to complete those functions.

As any pet store owner can attest to, staff training in a business that sees a high rate of employee turnover can seem like the very model of inefficiency. The simple fact is that most pet stores will not hold onto the average employee for much longer than a year or two. That means there is an expiration date on each minute of effort and every dollar spent on training that employee. However, experts say that there are ways that retailers can improve efficiency here in order to counterbalance the inherent turnover. First and foremost is taking a regimented approach, says Steele.

“From what we’ve seen, success with training in a high-turnover kind of environment largely depends on the training tools available and how well-documented the processes are in the business,” he says. “If your processes are well-documented, all of your employees will be doing things the same way and you can refer them to a specific reference tool. In my experience, quick-reference guides can be very helpful.”

Steele also suggests batch-training and specializing employees can go a long way in making the training process more efficient.