9 Strategies to increase profits in retail
Any retailer can start implementing these today
If you are a small or medium-sized retailer in Africa or South Asia (or in any other developing or emerging economy), you face unique challenges when it comes to increasing profits. However, you can set your business on a path to sustained success by using the right strategies to increase profits in retail.
Unique challenges for retail businesses
Compared to retailers in more-developed economies, such as the US or Europe, a retailer in a developing or emerging economy faces a unique set of challenges that make it more difficult for them to become profitable.
Some of the main challenges that retailers in these economies face include:
- Customers have lower purchasing power
- There is higher competition
- Supply chains are less developed
- Not enough access to funding for business growth
- Political instability and government regulations
These challenges become visible in many different ways:
- A clothing retailer might have to sell their products at lower prices than in developed countries, due to the lower purchasing power of the average consumer.
- A supermarket might struggle to achieve a large market share due to high competition from many small, independent retailers.
- A furniture retailer might face difficulty in getting their products to market because of less developed logistics networks which lead to higher costs and lower profits.
- An office supplies business might struggle to scale up because it cannot get access to the funding it needs to grow.
Each retail business has its own set of challenges. These depend on factors like the type of business, geographic location, and expertise of the business owner.
It also means that each retail business will have to choose an approach that is best suited to the business and the local market.
The following nine strategies to increase profits in retail are a good starting point.
9 Strategies to increase profits in retail
The below strategies are sound strategies that can be used by any business wanting to increase profits.
1. Control costs
One of the key strategies to increase profits in retail is to focus on cost control.
This can be achieved by confirming that you know all your expenses, negotiating better prices with suppliers, cutting unnecessary expenses, and streamlining operations.
Examples:
- A clothing retailer might negotiate with textile manufacturers to lower the cost of materials,
- A grocery store might reduce waste by implementing a more efficient inventory management system.
Review your operations and processes to identify areas where you can cut costs. Some easy strategies including reducing electricity consumption or using more cost-effective marketing channels.
By implementing cost control measures, you will ensure that you are not wasting money on unnecessary expenses.
2. Get more customers
This is a strategy that everybody is implementing.
If you have followed my blog for some time, you know that I believe in targeting a very specific kind of customer: your Most Profitable Customers.
This is because Most Profitable Customers bring in more money and help your business grow faster. They are also more loyal to your business.
Also, getting more customers reduces your dependency on one or just a few customers. This makes your business stronger.
Examples:
- A jewelry retailer might start selling their products on e-commerce platforms like Amazon or Etsy to reach a global audience
- A furniture manufacturer in China might start exporting their products to other countries in Asia.
3. Diversify your products
Another strategy to increase profits in retail is to diversify your product and service offerings.
This can be achieved by adding complementary products or services that appeal to your existing customers.
Examples:
- A bookstore might start selling coffee, tea and pastries in addition to books to attract customers who are looking for a nice place to spend some time
- A clothing store might start offering stylist and tailoring services to customers who are looking for a personalised fit.
Check out more business growth strategies (with examples) in this article.
4. Improve customer service
Providing excellent customer service is one of the best strategies to increase profits in retail.
There are various ways to achieve this, including by investing in training for staff, creating a positive and welcoming atmosphere for customers, and introducing a loyalty program.
Examples:
- An electronics store might train staff to be experts in the products they sell, so they can provide customers with detailed and accurate information
- A beauty store might create a relaxing and inviting atmosphere by offering a tea and coffee service to make customers feel welcome and comfortable.
By focusing on customer service, your can increase customer retention, repeat business, and positive word-of-mouth marketing. These are some of the cheapest ways to generate more business.
You can also use customer feedback to improve your products and services.
5. Build a strong brand
When you have a strong brand, you can charge higher prices for your products or services. Just look at Apple, Nike, Mercedes, or Microsoft.
Building a strong brand requires your to create a consistent image, maintain a strong online presence and engaging with customers wherever you find them, including on social media.
A consistent image means that all communications from your company are easily recognised by customers. If you send emails, all emails have the same format. When you do marketing, things like the kind of pictures and lettertype that you use, are the same in each campaign.
Examples:
- A clothing store might create a recognisable logo and use consistent branding across all of their marketing materials
- A furniture store might use social media to showcase customer testimonials and before-and-after photos of their products in use to build trust and credibility.
6. Focus on upselling and cross-selling
One of the lesser-used strategies to increase profits in retail is upselling and cross-selling.
- Upselling means convincing your customer to buy a more expensive product or service.
- Cross-selling means convincing your customer to buy additional items that complement the initial purchase.
This can be achieved by training staff to identify opportunities to offer complementary or higher-priced products to customers.
Examples:
- A clothing store might train staff to suggest accessories like scarves, jewelry or even styling advice to complement the clothing that customers are interested in
- A home appliance store might train staff to offer extended warranties or maintenance plans to customers who are purchasing high-ticket items.
If you do it well, upselling and cross-selling can help you double the size of your business in one year.
7. Optimise pricing
When you optimise pricing, it means that you choose your prices depending on various factors.
This could be how busy your business is. Or, the season of the year. Or, the complexity or duration of the project. Or, market demand and supply.
Before you consider optimising your pricing strategy, make sure that your product or service is profitable. If not, that is the first issue you need to tackle.
If your products or services are profitable, do some market research to identify the optimal price points. Also pay attention to market trends and consumer preferences.
Then, look for a way to implement dynamic pricing and start testing various pricing models. You can also start offering bundled services, or create upsell and cross-sell opportunities.
Examples:
- A restaurant might use data from customer traffic and weather patterns to adjust prices for certain dishes or menu items
- A hotel might use data from occupancy rates to adjust room rates based on demand.
8. Create a unique and memorable shopping experience
A lesser-used strategy to increase profits in retail is to focus on creating a unique and memorable shopping experience.
There are various ways to do this. You can create a visually appealing store design, offer personalised services to customers, or create special events and promotions for exclusive customers.
In short: you want the customer to leave your business with a great feeling or give them something that makes them feel like they belong to an exclusive group.
Examples:
- A craft store might create a colorful and inviting store design that showcases the unique products they sell
- A toy store might offer free workshops and classes for children to encourage repeat visits and customer loyalty.
Look for ways to do something different from what your competitors are doing. Here are some ideas from big businesses to inspire you.
9. Use data to guide your decisions
Lastly, a strategy to increase profits is to implement a data-driven approach.
This can be done by using customer data to track trends, and make informed decisions about product offerings, promotions and pricing.
Examples:
- A grocery store can use customer data to identify the most popular products, and stock more of them to increase sales
- A shoe store might use customer data to identify the best times to offer sales and promotions.
What profit margin should you aim for?
Retailers should aim for a profit margin of 10–15%.
But keep in mind that:
- Retail profit margins vary depending on the country, industry and location.
- Some retailers may be able to achieve much higher profit margins than others.
If you want details, see my article about a good profit margin for retail.
Conclusion
To conclude, as a small or medium-sized retailer in Africa or South Asia, you can use a number of strategies to increase profits in retail.
These strategies can help you achieve sustained business success, especially if you also focus on targeting high-profit margin industries.
It is important to remember that success in retail is not a one-time thing. It is a continuous process that requires constant learning, experimenting and adaptation.
If you are willing to take risks, try new things and continuously improve your operations, you will counted among those who succeed in the long run.
So, don’t hesitate. Take action today to start increasing your profits.
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Hi, I’m Tonia Dabwe, founder & director of GuideMyGrowth.com. At Guide My Growth, I help small and medium businesses generate higher profits so that they can grow faster without having to depend on outside funding. This article was originally published on Guide My Growth.
