DARLINGTON ON SHOWROOMS: More Profitability Guidelines
In this issue is the third part of SUPPLY HOUSE TIMES' in-depth 2006 Showroom Survey. It would be an understatement to say that our plumbing wholesale industry lags behind in having significant benchmark information available - especially on the showroom side of your business. ASA and the several buying groups try to gather meaningful information against which you can compare your facts and figures. But, other than SUPPLY HOUSE TIMES' showroom survey conducted every three years, there is no pertinent benchmark information available for wholesale and independent decorative plumbing and hardware showroom businesses.
I just spent several hours researching various performance and productivity figures for a number of different retail businesses, several of which you might recognize. Okay, you ask, “Why would he Google retail?” That's easy. Whether you are a wholesaler that sells to the trades only, or one that has opened the doors to everyone - your business must look and act like a retail business.
Is it not a fact that a very large portion of your quotes are done with and for the homeowner (regardless of who places the order)? Isn't it true that the homeowners are demanding to have a greater say in what styles, finishes, colors, options, accessories, bells and whistles go into their homes? A short 20 years ago, the architect, builder or plumber made these decisions. Not so today! The homeowners see it as their home, their investment, their style selection, and they want to be a big part of the decision-making process.
So, that being the case, you have to build out your showrooms to be retail (customer) friendly. Your store hours and variety of services offered have to be retail (customer) friendly. Your sales team has to learn to be retail (customer) friendly. And all you owners and top managers have to learn retail! It's an all-new and totally different ball game from the wholesale business. Most wholesalers with showrooms haven't elected to take that big step - and their showroom sales and margins reflect it. Those wholesalers who have decided to become students of retail and are making their showrooms and their people retail (customer) friendly are starting to reap big rewards. Yes, being a wholesaler and operating a showroom is like being in two distinctly different businesses.
Wholesalers don't have to do a lot of marketing - retailers do! This includes dedicating 5% or more of total showroom sales for advertising, public relations and promotions. You should be able to recoup +/- 2% of the 5% through co-op advertising dollars. It requires you to be real creative in how you do all of this fun marketing. And, it takes learning to talk an all-new language: high-end homeowner talk vs. plumber talk.
Finally, it takes an all-new mentality concerning how to make money. More times than not with the plumber, it's “What's your price?” Commodity products are “auctioned off” to the lowest bidder. In the showroom, you need a new pricing mentality. Since the cost of operating a showroom is greater, your margin out of the showroom has to be greater. You have to learn to sell value, features and benefits. Instead of wholesale margins in the low 20s, your showroom margins have to be in the high 30s or higher. A lot of folks are achieving these numbers - are you?
But, back to some of the things I picked up in my research. Retail sales per square foot of retail space is important. In fact, very important! I Googled a number of retail businesses that you'll rec-ognize, and here's what I found:
Business/Sales Per Sq. Ft.:
Next, I called five independent showroom owners and their numbers were a bit more impressive. They ranged from a low of $600 per sq. ft. to over $1,000 per sq. ft. A big difference here also.
But the biggest difference between the wholesaler showroom and the independent was in margin. The wholesalers averaged 28% gross profit and the independents were 10 points higher. There's something wrong with that picture. Wholesalers are the big boys - they buy everything direct from the manufacturers, whereas the independents buy a lot direct from the manufacturers but also buy a lot through the wholesalers.
No, I haven't forgotten that the plumber is the wholesaler's core business - but I also believe (very strongly) that plumbers shouldn't receive the same deep discounts on showroom products (quotes) that they receive out of the warehouse or over the counter. I know, I beat this subject like a punching bag, but the sooner you become a believer, the sooner your margins will be in the high 30s also.
To figure your sales per square foot of showroom space, simply divide total showroom sales by the square footage of display space. If you have more than one showroom, do the exercise for each location. If you're not in the $500+ per square foot range, you either have too much space or not enough sales.
The big box retailers even take this a step further: They do sales per linear foot of shelf space. Trust me - we're not ready for this one! They can tell you to the minute what their sales are per sq. ft. each and every day. That might be a bit much, but wouldn't you like to know at least once a month how you're doing? I know I would. Set some goals and start working as hard as you can to achieve them.
Here's another great benchmark: sales per transaction. I'll bet a lot of you know this number for your wholesale business. How about the showroom side? I wish I had some numbers to share as guidelines, but I don't. Maybe we can include these items in our next showroom survey!
When I operated a showroom business, we sold several different product categories. Remember how I preach product diversification? Remember how I talk up trying to be as customer-friendly as possible? Well, I strongly believe in as much “one-stop shopping” as possible. We sold decorative plumbing, decorative hardware, kitchen cabinets, countertops and appliances. If I still owned the business I'd be selling tile, lighting and outdoor kitchens. It wouldn't have cost me any more to market all of these products, and my, oh my, how my sales per sq. ft. of display space would have grown. And, I would have been more customer-friendly. Win-win for everyone.
A couple of other benchmarks that I wish were available would be sales and gross profit dollars per showroom employee. The sales numbers certainly wouldn't be as high as the wholesale side of the business, but I'll bet the gross profit dollars would be close.
The only guidelines I can share on this are from my experience working as a consultant for a number of plumbing wholesalers and independent showrooms. Plumbing wholesale showroom salespeople seem to average $45,000 per month in sales, with a range from $30,000 to $100,000+. Independent salespeople average close to $75,000 in sales per month, with some that go $125,000 to $150,000 each and every month. I've already touched on the gross profit percentages.
Be sure and retain the three articles that covered the SUPPLY HOUSE TIMES' Showroom Survey. Then use some of the benchmarks discussed in this article to help you see how you compare to other people in the showroom business. I hope this will help you grade yourself and chart a course to improve where necessary. Best of luck!