Lighting with Lisa: The Lighting Podcast

Margins, Margins, Margins

October 31, 2023 Lisa Bartlett Season 2 Episode 5
Lighting with Lisa: The Lighting Podcast
Margins, Margins, Margins
Show Notes Transcript Chapter Markers

Brace yourself, as we're about to set off on an electrifying journey, illuminating the intricacies of boosting margins in the lighting industry. We'll unearth how market changes disrupted traditional pricing structures, causing a 'margin squeeze' for conventional showrooms, coupled with other industry-wide changes to the distribution landscape. But don't worry, our conversation extends to how to keep your business glowing, with many suggestions and thoughtful strategies that will help you stay competitive and profitable in your brick and mortar showroom business.  Have a great tip to share? Email me!

Thank you to Fanimation for sponsoring this episode of Lighting with Lisa: the Lighting Industry's Podcast.

Speaker 1:

Hello and welcome fellow lighting nerds and friends to Lighting with Lisa, the podcast sponsored this week by Fanimation. Thank you so much, fanimation, for sponsoring the podcast. I very much appreciate it and stay tuned for more from Fanimation. So this week's episode. Oh, housekeeping note at the top, don't forget if you have ideas, suggestions, just follow up, commentary on a podcast episode. Please email me at lisa at lightingwithlisacom. I super appreciate anyone who takes the time to send a message, even if it's just a few sentences. I will combine that potentially into an upcoming episode and of course, I can keep you as anonymous or visible as you want. If you personally would like to be featured on an upcoming episode of the podcast, please also reach out via email. If your company is interested in sponsoring a podcast, please reach out to that email. I would be delighted to hear from you. And also, don't forget and the show notes are two very useful light fixture groups. One is the fixture finder group and the other is the residential lighting industry Job board. Please follow those links, join those groups and stay engaged with a positive momentum in our industry. Thank you so much and I'll be on the lookout for your emails. So the topic this week is margins, margins, margins. I'm super excited for this episode. I really am. It's one of the biggest ongoing challenges in any business. Right to every business is looking to increase their margins. There's not one of us that isn't. It's necessary and it's important, and how we all aim to grow and thrive is by boosting our margins. So the challenge in lighting is the margin squeeze. This really started, in my opinion, with the thriving of e-commerce businesses and all of the related IMAP, map Pick your Right acronym there for each, various by manufacturer. But so many of those MAP prices ended. We went through a whole ups and downs and ups and downs with those, but they ended up settling out around at a standard number. Because this podcast is public, I'm not going to stay what that number is, although anyone in the industry listening to this is well aware but in the event, we have a consumer listening to the podcast. I don't want to give up that information. So we bounced around a bit, but we settled on a retail price structure in our industry and that retail price structure online did not necessarily correspond with what everyone's brick and mortar pricing levels were. Not that I think at the end of the day things were so much different, but because of how the lighting showroom business operates, because of who the general clientele is, we just had things programmed a different way and in doing so we were able to maintain decent margin levels in a way that worked for our business, our customer mix, our stores. So pricing could the retail price on the tag could vary between different brick and mortar showrooms across the country, depending on who their target audience was. Well, with e-com sales, that option went away. Right, it just became too easy for anyone to walk into any brick and mortar store, find an item, go to Google or pick your favorite search engine, find that product, find it at a different price a lower price potentially and just buy now. And this is really where I believe us in the brick and mortar showroom industry really face some challenges, because this really upended the structure of our businesses. Like the business model that we had been following, that people had been making work for decades by this time was almost overnight, like removed from us. So everyone had to scramble a bit, some quicker than others, to get on board with this whole new system so that we could kind of repair these margin squeezing issues, and I think by and large a lot of people have, but it's still an ongoing concern, right? Because so much else about the way our businesses are structured and what our customers expect of us as brick and mortar retailers. Like, none of that changed, but our ability to charge a maybe a little bit more of a higher price, that did go away. So we've all had to learn to be a little bit savvier, a little more economical, a little more thoughtful in order to keep the margins where they need to be to sustain a healthy business. And then the other kind of newest wrinkle with this is when a brick and mortar showroom is in some version of competition with their own suppliers who are also selling products direct to consumer or whatever. It's just a challenging wrinkle, right. So I've said before on this podcast I will continue to say it that what I really just think happens is we take the pie of customers who are interested in buying a light fixture and all we do is like subdivide the pieces of pie. So if the showroom pie was, you know, half the pie and the big box store was a quarter of the pie and E-com was a quarter of the pie, well, you insert the manufacturers, direct sales, and that probably takes away a little from all the slices of pie. It just it adds the manufacturer slice in, but it shrinks everything else. We're not like growing the pie, we're just subdividing it differently. And that is, you know, a challenge. Now, most manufacturers who do this, the pricing is very fair in terms of like it's the same price on their sites as it would be on my own store's website. It's just, it's just a thing you know, and I don't suspect it's going away. So I don't really see too much point in harping on it. Quite honestly, this podcast in the Lighting with Lisa brand it. This is a space for solutions and it's not for complaints. It's not for name checking, it's not for any of those things. We just have to take what we have, highlight the issues. You know there is absolutely a necessity to shine a light on these challenges and make sure everyone is aware of the implications of some of these policies. If you're not working front lines in a showroom, dealing with consumers every day face to face, it might not be as clear to you how impactful some of these decisions are. In the showroom world. It might seem more complaining about nothing when there are complaints. So I'm really just trying to shine a light on the issue. But we're not here to go in on anybody doing this or that or the other. We just have to figure out some solutions, some ways forward, some ways to understand what our operating challenges are and how to still find a way to thrive as a business given those challenges, and hopefully the challenges aren't so big that we end up going out of business right, like that is sort of the unsaid thing. That's very scary about some of this stuff is, you know, the reason we all worry so much about margins and the margin shrinkage we've experienced is when you look at that and you look at your overhead operating costs that for the most part are pretty fixed. When those numbers get real close together it's a little scary. So there is definitely always cause for concern. On this topic, I just want everyone to identify what the issues are, identify which part of the issue impacts your showroom the most and then take active steps to find ways to boost your margin and profitability in your showroom. So one thing I've done in my own store and I talk about often is that knowing what the manufacturers are doing like for the health of their own businesses, that definitely impacts my display decisions and you know we'll continue to do so and I'm y'all. I'm love everything in this industry like so so much. That's why I do this, but I do have to make you know, smart decisions based on what I see going on and what I know my own business needs in order to keep my staff employed and to be able to grow and try new things and expand the business and reach new customers. There's just, you know, a certain baseline of health that we need to do all that. So I want to. I'm gonna pause at this moment to thank our sponsor of this episode and then, after the, after the break, we're gonna talk about different strategies for increasing margins and I'm gonna go in depth on a few of these. So definitely stay tuned for that. So this episode of lighting with Lisa is sponsored by fan a nation. Thank you so much, fan a nation for sponsoring the podcast this week. If you didn't already know, here are some fun and exciting things about fan a nation that you should know and consider when you're looking for a ceiling fan line to stock and display in your showroom. So if you didn't know I actually didn't know this in January of next year, january twenty twenty four fan a nation is celebrating forty years in business. I suspect, knowing the team at fan a nation, there will be some fun parties coming up at January light of a show. I don't actually know this, but I say stay tuned for whatever that is A fan a nation's focus is entirely on ceiling fans, not chandeliers, not bathroom vanities, only fans. And so I talk about this a lot on the podcast in in terms of like, when you're thinking about your business, compared to like a big box store or one of these A king glomerate type stores that sell plumbing, lighting, whatever else. You know the beauty of working with the lighting showroom as you get really specific knowledge and experience on lighting and fans, and so fan a nation has that same quality where they are just focused on fans. Fan a nation is, believe most everyone knows is a family owned and operated business. They have the widest variety of residential and how hospitality fans for indoors and outdoors. It's easily scalable line in so many sizes finishes. You name it. The every fan a nation DC motor includes the fan sync Wi-Fi as well as something that many of us have been asking for Color temperature tunable light kits selectable on the handheld remote, not on the fan itself. On the remote that choices are three thousand four thousand five thousand Kelvin. And that's on all fan a nation DC motor products, which is pretty cool. Fan a nation has a unilateral minimum retail price policy. If you're a stocking dealer with fan a nation and you buy into their program, at whatever the different levels are, your sales rep can clue you in on all of that. There's different incentives. As your purchases with fan a nation grow, so do the incentives pricing, discounts, freight spiff or co-op, avoid drop ship fees, minimum order fees and they incentivize your over your growth with the growth with the volume rebate, which is one of my favorite things personally. The return policy is no restocking fee for products returned new in the box as long as the wires have not been cut within 60 days of the receipt of the product. And, of course, the showroom pays the return freight back to fan a nation. But we all know on topic today, returns are costly and impact margins. And lastly, fan a nation wants everyone to know that they pride ourselves in giving the best customer experience possible, from sales through service to technical support after the sale. So thank you, fan a nation. Okay, so on to margins and potential strategies. So if you Google the internet which I may or may not have done. I had a list I wanted to add to it. I think I've mentioned this before, but it always kind of makes me giggle that the very first thing when you Google sorry how to boost your margins is raise prices. Well, as we know, that's out. That's not something on our e-com qualified products from most of our lighting and fan manufacturers. Raising prices just isn't a thing for the reasons mentioned at the top of the episode. Now I will say this is where bringing in unique products really really helps. So every showroom might have a different take on what a unique product is. What I have been enjoying in my showroom is to bring in some decor and lifestyle products that correlate with the vibe of living in coastal southeastern Georgia. In South Carolina it's very popular. We have a lot of people moving to this area and have had for the past three years. So the anything that kind of suits the lifestyle of the area that we're able to bring in whether it's tea towels with a cute graphic and a city name and location printed on it, you name it Anything that corresponds with the lifestyle of our little corner of the world, products we can bring in that repeat that feeling that people really enjoy, like that's why they're moving here. We're able to get a bit higher margin. It's not. We're not locked into. You know, this is how much the chandelier costs and there's really no way around it. The retail price is the retail price. So with these other goods, especially ones that are like customized, you can get more margin. Now, do you have to sell way more of them to equal the ticket price of, like, one great ceiling fan or one great chandelier? Sure, of course you do, but we're talking about boosting margins and finding products like this that you can add on to any sale and or have available to a customer who's maybe in the process of building a home, just shopping your store in advance, because they want some ideas. They know their builder's going to send them in anyway. They were in the area, they just wanted to poke around, they wanted to meet the salesperson. Whatever the reason is, even that experience could end up in a sale, and then they'll be back and then they'll realize that also you have these kinds of gifts or decor or pick whatever suits your market area and the profile of your business. I can only speak to the one that we've selected in my store, but there could be any number of other things that you would really key in on. Maybe you become like huge in artwork or you pick like this is kind of where your creativity as the showroom owner, working with your sales team, you can really kind of try to source products and find interesting things that you can make a higher margin on. I highly recommend doing that supporting those product sales with great merchandising and getting your sales team really excited about those things, whether it's something even as random as dog toys, something that could be like really unique, that really gets your team excited. Like candles has been kind of a traditional thing and candles are great, but there are even more little unique niches that you can find that will really help in terms of keeping your margins just a little bit higher, and I definitely recommend exploring those. And one of the other points I'm going to make well, let's just move on to it is another way to keep your margins strong is to focus on customer retention and repeat visits. So a lot of stores do this via like a loyalty program like how many loyalty apps do you have on your phone so that you can get a benefit? And I get it. I have not actually tried implementing a loyalty program at my store. If you have and have feedback that you'd like to share, please email me, lisa, at lightingwithlisacom. I would love to hear some details on that and maybe I'd do some more research on it. But that focusing on customer retention and repeat visits is really critical when you have a residential lighting and fan showroom. One of the other challenges in terms of things that we talk about often in our industry is it's not like everyone goes out every year and buys a new dining room chandelier right, it's just not a thing. Well, if it is a thing, you have a lot of money, but it's just not a common thing. You know, I feel like we're lucky if people want to upgrade their lighting every five years, let alone most people. They move into a house, they might go on a renovation spree and then that's it. We don't see them again for 20 years. So the idea here is to really focus on your customer retention, focus on a great customer experience, so that they have blinders on when it comes to looking at lighting and fans, and we want to repeat their visits to our showroom. And this, again, is where the first recommendation about bringing in an array of products outside of lighting can be really helpful to continue to draw people into your showroom on a regular basis. So if you are primarily an amazing lighting and fan distributor, keep at it. But if you can also add on great local gifts, great hostess gifts, great accent furniture little things that people do go out and shop for and if they can remember that your store is really a place to go like, oh I want to go here, I want to go there and oh, I also want to go check out the lighting store because they bring in such cute product, they give people a reason to come into your store more frequently and for a different, like a wider array of purchases. That way they're not thinking of your business once every 10 years. Maybe they're thinking of your business multiple times a year and visiting you and just bringing in that much more income. Maybe they're not spending $1,000 every time they come in, but if they spend $200 every time they come in and they do that a couple times a year, there's a lot of great value in keeping that customer and keeping them engaged with you, and the money you're going to make over the lifetime of that customer is really, really important to the health of your business, so don't don't sell that short for sure. So that's a huge one for me. Another really big one is to optimize your vendor partnerships. You can do this a number of ways. Whether you consolidate suppliers, whether you do this or that, my recommendation, quite honestly and this is no big secret to anybody who's been in the industry is to really figure out your 10 or 15 best vendor partnerships for your business, and this is going to be different for every lighting show in across the country. It's going to differ based on who your primary customer is. It's going to differ based on, like, what you're trying to do with the business. Are you trying to increase your retail sales? Are you trying to grow your builder business? Are you trying to grow your designer business? Whatever it is, we all have different needs. But really step back, especially as we approach the end of the year, and think about what your growth targets are for 2024 in terms of customer and optimize your supplier relationships based on those targets. Aggregate your dollars your dollars are your friend in this case. So the more you can aggregate your purchasing power with a smaller number of suppliers while also maintaining good relationships with any number of the other suppliers out there. This is not a zero sum game. It's not one or the other. It is a both and space. But when you can really key in on those suppliers that are really critical to your business, work with those sales agents, work with those factories, get signed up for their incentive program, that might make sense to your business, even if it costs a little upfront. If there's a longer term payoff and benefits, do that. Get whatever works for your business, whether like is it more important to you to have free freight every day of the week? Is it more important to you to have inside discounts? When you commit to a brand, they will, nine times out of 10, commit back to you. They just don't want. They want us to be clear about our partnerships. They want us to respect our partnerships and honor them. And as long as you go into it with all of that intentioned and well lined out for them about where you're taking your business, I promise you they'll meet you at the table and you can find a way forward and a way that boosts your bottom line and really helps your margin. It's one of the best things I've been able to do in my store and my personal plan for 2024 is to keep expanding and optimizing these relationships to drive even more sales and bottom line success. For me it takes some time right. You can't just flip a switch on this and it works perfectly overnight. You have to spend a year, a couple of years really investing with a brand or two that aligns with what your product needs are for your showroom. But when you can do that, it is truly, truly helpful to the overall success of your business. So optimize suppliers for sure. Okay. So the other next one on margins. I'm just going to skip through a couple of these that are pretty easy. Reduce costs, okay, yeah, I mean. I think we're all aware that the best way to increase margin is to reduce your overhead and fixed expenses. It's probably the first thing everyone goes to when they need more profitability. So that one's pretty easy. Straightforward I guess easy is the wrong word. Reducing costs is not easy, but it's a pretty straightforward one. Inventory management is always important. Make sure you're only buying what you need when you need it, that you're not running short of things and overpaying, keeping your warehouse appropriately stocked and clear of dead stock. I'm always such a big fan of getting rid of discontinued product as quick as you can, so inventory management is always, always important. There's two that are kind of hand in hand Markdowns. So the general rule of thumb if you want to increase your margins is to avoid markdowns, avoid excessive discounting. But back to that topic about retail pricing. There's IMAP holiday is going on for almost everything you sell, like almost all the time anyway. Some brands are like literally always on sale and again Not here to name check anybody. This is very easy to figure out look at your own website and you can see where the sales always are. So, yeah, I'd love to avoid markdowns, but to some degree I my hands are also tied on this, because if it's manufacturers but you know pricing holiday, I have to honor that. I can't, I can't really argue and say you should pay more for it. So the the tip here is to be smart about discounts, right? So we can't really avoid IMAP holidays as much as I would really love to see some moderation of IMAP holidays. But we can try to be smart about our discounts. You know, if you know you want to run a promotion on ceiling fans or exterior lighting, see about doing some sort of bulk buy at a discount so that you can offer like a special promo to your customers Without it actually shrinking your margins. You know, to some degree we are retail businesses and and discounting is always going to be a part of what we do. So the I think really the best way to manage this is Well, you know, wherever you can do great buys to provide that extra value. But I really think a lot of this just goes back to that previous suggestion of optimizing your vendor relationships. If you have optimal vendor relationships, even if their product goes on sale, you should be reasonably insulated from those discounts. It's just always going to be a challenge, but consumers are always going to expect things to go on sale. So this is really where you have to be strategic About what makes sense to display, what makes sense to stock, what makes sense for your partners, for your showroom. And again, that's going to vary for everybody. There is no one-size-fits-all solution here. So the last few Tips well, here's one and then the other two I'm going to combine into one because, well, we're running a bit long I love this topic. The other kind of conventional wisdom on margins is to do ups up sales and add-on sales. You know, in my own showroom You're gonna get a question if you don't sell light bulbs with a fixture if the light bulbs aren't already included, I'm gonna ask, I'm gonna want to know, why not You're? So you know there's any number of add-ons and upsells we can do in our industry. Making sure that your staff is appropriately trained and knowledgeable about those up sale opportunities is a challenge and it's something as a showroom owner or manager you really need to spend time on. Because when a when a salesperson is going to upsell, it doesn't need to come off as an upsell pitch. Consumers will shut that down so quick. But if it's just a part of the conversation, the dialogue, well, you're are you're doing this, wouldn't it if we? If we do this thing, yeah, it increases the price, but you get these other benefits. Like, as long as it is always a part of the the customer's best interest, doing those add-on and up sale opportunities are actually fairly easy, but you do just have to be very strategic and knowledgeable about how you present them. If it's just kind of like stuff thrown at the wall and hoping something sticks, consumers do tend to be pretty savvy and see right through that and they'll just say no, thank you, just give me what I already asked for and we agreed upon. So that is always and will always be an opportunity to boost margins via add-on and upsell. And this is where also having that other product mix of maybe a little bit higher margin goods that you're adding on to every sale Is really important. They came for a ceiling fan. They left with a ceiling fan and a cute little gift basket for their Hostess gift for a party they're going to later that day. So Any way that you can like add on with those higher margin goods is super, super useful. So the last Margin tip that I felt that I really like and that really resonated with me and was like I need to work on this more for my store is To increase your, your showroom brand's, trustworthiness and perceived value. So that's kind of like to me two sides of the same coin a bit, but when you think about it, like Google reviews are like the best and Having a bunch of Google reviews all like in the four and five star range Really just gives your showroom such perceived value for potential shoppers and peace of mind Knowing that if they go there they're gonna get a good experience, that chances are that Everything's gonna go well because their perception of your store, based on like online reviews is tremendous, like Google reviews is the easy thing. But in all of your communications with the public at large so via your social media, via emails, google ads, whatever you're focusing on I think it's really, really important to build in an element of perceived value via your expert staff and trustworthiness. We understand the challenges of Buying a new fan. We understand the challenges of LED lighting technology in you know, as it exists today. We understand we are here for you. We will explain it to you, will answer all of your questions. Whatever you need, our business is here for you. We have got your back. You can trust us. We are your partners. We just want your home to be the safe, welcoming, wonderful place that you want it to be, and it is our mission to get you there. So if you have this sense that you're cultivating across all of your consumer outreach, that increases your trustworthiness and the value, the perceived value of your brand and what you offer customers. Oh my gosh, it's so tremendous. Me just think about it. You, as a shopper, where are you going to want to go? You want to go and spend your money with brands that you trust, with people that you know. It's so, so critical. And I just think, as lighting and fan showroom retailers, sometimes we just know we're the experts and we just assume the public at large knows that too. But how are they gonna know? You know, before I came into this industry I don't know that it ever would occurred to me to go to a specialty store. I probably would have just gone to a big box store. True moment confessional. I probably would have. I don't think it would have occurred to me to understand the value of a specialty business like a lighting or plumbing showroom. It wouldn't have occurred to me. Now you buy the wrong thing a few times and it quickly becomes clear. So these are like the messages that we need to communicate as an not only really in the showroom side, but as an industry at large. Again, if you're a listener at all to the podcast and things we've been doing, the concept I've always had around this idea is why lighting showrooms, we do bring a lot of value to the people that shop with us, that understand all of the ins and outs, the expertise required for these positions or for these decisions for a homeowner. So really focusing on that, everyone in this industry, focusing on that together and really supporting the value of a lighting showroom. That is like my dream for how I want the future of the lighting and fan industry to go. I just think there is so much opportunity there and it would benefit all of us and in that pie I was talking about. So if there's like four slices out of it now and the showroom pie has been shrinking, if we can really hone in on the importance of why your lighting showroom is so important for customers, why you're so helpful, if you have all this trustworthiness and great perceived value built into your showroom, well then maybe your pie starts to grow just a little bit more and maybe the Ecom pie shrinks a little, maybe the Big Pucks pie slice shrinks a little. And I really think, as showrooms, that's what we need to be focusing on the most, not the fact that there's multiple pieces of pie, but how do we increase our slice of pie? What is the value that a showroom brings? That is necessary, that is useful, and don't forget those margins. Increase those margins. Use any number of the tips here. Email me your own tip for increasing margins, something that's been super successful in your showroom that you wanna share with me. That might help other showrooms. Really, the stronger we all are together, the better our whole industry becomes. I know that for a fact. Thank you again to Fanimation for sponsoring this episode of Lighting with Lisa. Till next time, everyone, take care.

Challenges and Strategies for Boosting Margins
Boosting Margins and Customer Retention
Optimizing Vendor Partnerships and Increasing Margins
Increase Margins, Build Trust in Showrooms