A special coverage from Coalition of Visionary Resources COVR in partnership
with Kim Perkins
Q: I’m new to the Mind Body Spirit industry: How do I decide what products to carry in my new store/what are the right products that I should have in my store to increase sales?
A: For most Mind/Body/Spirit retailers, common inventory classifications or areas of the store include jewelry, stones and crystals, books, statuary, incense, clothing/accessories (scarves, purses), candles, personal care products (lotions, soaps, essential oils and diffusers), music, and meaningful gifts with a message or purpose (mugs, magnets, chimes, artwork, journals, etc.). As a general rule, stones and crystals, jewelry, and general gifts have the highest mark–ups and, therefore, can generate the most profit, but consumable merchandise (that customers need to replenish over and over) such as incense, lotions, and essential oils, can ensure customers return regularly. Some retailers also find greeting cards a profitable and dependable source of repeat customer visits.
A large part of the answer to this question depends on the amount of sales floor space you have. A very small store will need to choose carefully to offer the fastest-turning products, carefully displayed, so that the appearance is not an overcrowded mish-mash of merchandise. In a larger space, you can branch out a bit and carry a wider array and also have more freedom to “test” new products without having to discontinue a current line to make room.
Sometimes nearby stores will dictate products you want to carry, or leave out of your inventory mix. For instance, if there is a store nearby that specializes in pagan offerings, or essential oils, you may want to simply refer customers to them (and create good will all around) and use that shelf space for items customers cannot find locally.
Another consideration is what do you, as a buyer, love or have expertise in? If you have an eye for fashion design, you might include more clothing and accessories than someone who doesn’t have a flair in this area. Are you an avid reader? If so, you might consider a larger book section than a store owner who doesn’t have this interest and might want to only carry Mind/Body/Spirit bestsellers and specialty books to enhance displays.
Q: Are there any formulas to calculate how much more in rent I could comfortably afford based on current revenue?
A: The easiest way to answer this question is to look at your net profit for the year. Technically, you can afford increased rent of whatever figure is on your bottom line. That said, I do not advise increasing your rental expense unless the intention is to also increase sales and net profit.
My guess is that you are looking to expand your current square footage, or move to a similar size store in a better location. So I am going to provide a couple of examples that might help your decision making.
Let’s start with a hypothetical comparison of two possible spaces in different locations – one downtown and one a few blocks off the main street. If both places are 2,000 sq. ft., and the one off the beaten path costs $18 a square foot, then the rent would be $36,000 a year (2,000 x $18) or $3,000 a month. And if the other place, in the center of downtown, costs $23 a square foot, then the annual rent would be $46,200, or $3,850 a month. So the downtown space would be $850 more per month or $10,200 more a year.
(Note: I am not adding in sales tax or common area maintenance – just the basics for comparison, but you will want to add in all of those costs and adjust these equations).
Now let’s break down what that $850 more a month actually means. If you divide $850 by 30 days (average days open per month), it comes to $28.33 per day. So you would need to generate $28.33 more in profit per day to cover the additional cost. To translate that number into total sales, you need to know your cost of goods sold percentage (how much the merchandise actually costs you) so you can ascertain your gross profit margin.
For example: with a cost of goods sold (COGS) percentage of 54 percent, and a gross profit margin of 46 percent (total sales 100 percent - COGS 54 percent = Gross Profit Margin of 46 percent), you would have to generate an additional $62 per day in sales to cover the cost of the additional rent. ($62 in sales – 54 percent COGS ($33.48) = $28.52 Gross Profit). That’s over $22,000 additional sales a year just to cover the additional rent!
The key to figuring out if this is viable for your business is to determine how many additional customers/sales you expect to generate each day as a result of being in a better or larger location.
If your average sale is $20, you are only talking about needing 3.1 more customers a day to justify the higher rent. And if your average sale is $25, then you only need 2.5 more customers a day to cover the extra expense. The trick is to gauge whether the increased rent will bring more customers or cause current customers to increase the amount of their average purchase. Maybe increasing the rent will bring you better parking, enhancing customer convenience, or allow you to expand your inventory in an already profitable area, both of which could increase sales.
A few years ago, a retailer contacted me who wanted to move into a busier location with more foot traffic. This particular retailer wanted to downsize from a 2500 sq. ft. location, at a cost of $24 per sq. ft., where they were generating $250,000 in sales a year, and having a hard time meeting the rent, to a 1250 sq. ft. location, between two restaurants, where they anticipated far more foot traffic, and the annual rent would be $36 per sq. ft.. This retailer projected that in the new location, their annual sales would double with all the extra customers that would come in and shop.
This was my response at the time: “One concern I have is that you are expecting sales to double in the new space. I want to give you an example to be sure that you are being realistic. You are moving from a location that was costing $24 a sq. ft. to one that costs $36 a sq. ft., so even though the monthly rent is less, you also have less square footage to generate sales. If your sales last year were $250K in 2500 sq. ft. of space, that means you were generating $100 in sales per sq. ft. If your sales double (as you expect) to $500K in 1250 sq. ft., you would then be generating $400 per sq. ft. That is a big jump, even if your foot traffic increases!”
They did decide to make the move and within 18 months they had to close their doors. Their sales did increase, but nowhere near the amount needed to make the new space viable. So, err on the side of caution in your projections! Usually, with any move, there will be a dip in sales before there is a rebound and increase.
Q: How much of my overall revenue should realistically come from store events and psychic readings?
A: There is no hard and fast rule to determine the ideal percentage of your overall revenue that should come from store events and psychic readings. Some stores find that 15 percent is a good percentage for them, and for others it can be more than 50 percent. These figures depend on the culture of your store, the percentage of your customer base that is eager for readings and classes or special events, the size of your store and amount of annual sales, and the amount of your resources (floor space, advertising, inventory) you have allotted. Rather than shooting for an exact percentage, focusing on high quality offerings will bring you the best return on whatever time, money and materials you invest.
The first thing to determine is the culture or “flavor” of your store and how you are perceived in the community. Have you established a level of trust with your customer base so that they get excited about the events (whether that be a store sale, psychic fair, or new psychic reader or guest speaker) you offer? Whenever you are offering psychic readings, this trust factor is very important and can definitely enhance sales in that area.
And second is to remember that this is not a one-size-fits-all endeavor. You have to find the mix that is right for you. Some stores automatically lend themselves to readings, classes, etc., because they have a curious and open demographic, while others have to work harder to be accepted.
When we first opened our store, in a fairly conservative Florida community, in the early 1990s, we purposely waited a couple of years to add psychic readings, and first established our “brand” as an award-winning book and gift store. Eventually, that cautious beginning gave way to having a robust reading program with readers seven days a week generating over $200,000 a year in revenue. Although most communities are open to psychic services, you still need to be aware of how receptive your market is, as different parts of the country can vary widely.
The Coalition of Visionary Resources – COVR is a non-profit trade organization dedicated to supporting independent retailers, manufacturers, distributors, wholesalers and publishers in the body-min-spirit industry. To learn more, visit www.covr.org