from the desk of Mary Mershein
Lululemon shares were $2 in 2007. Five years later they were $76 and the company was worth $10 billion. One reason for the growth was the creation of "scarcity" in which stores kept only a limited supply of merchandise. Low inventory levels forced customers to buy or lose out when the item goes out of stock, creating a buying frenzy. Lululemon also rarely sold items on sale, even charging over four times the price of similar items at the competition.
Costco was the first company to grow from zero to $3 billion in sales in less than six years. As of Feb 26, 2012, net sales for the first half year were $44 billion. Similar to Lululemon, Costco carries many items for a very limited time, encouraging customers to buy while they can. Costco does not carry multiple brands or products whose cost is too high, even if it’s a popular brand such as Coca Cola. Costco also does not stock extra bags or packing materials. Products are delivered to stores on shipping pallets and displayed that way, rather than arranged beautifully on shelves. There are also long lineups at the cashiers, hefty membership fees and the inconvenience of buying items in large bulk sizes.
In 1919 the first Loblaws grocery store opened using a new retail concept called self-service, the opposite to the traditional full service. Under full service, store employees fetched items for customers, weighed items and calculated the total purchase. The total was then added to the customer’s account for later payment. Home delivery was usually included free of charge. Under the new self-serve model, customers browsed freely throughout the store, picked-up their own goods without the aid of a staff person and then paid at a central cashier. There was no payment on account or home delivery. As with Lululemon and Costco, popular items might not be in stock to encourage customers to come again. Despite the lack of service, Loblaws is now Canada’s largest grocery store chain. On Dec 31, 2011, Loblaws had annual net earnings of $769 million on revenues of $31.25 billion.
Selling at an inconvenience. Refusing to sell. Selling out. Self-selling. High price selling. Low price selling. Selling directly from shipping pallets. Selling memberships. Creating urgency to buy through scarcity. These are all NOT the typical sales tactics of a traditional retailer where full service with plenty of convenience and a variety of in stock products arranged beautifully on shelves are the norm. Yet, these tactics drove these companies to success.
Accounting does not record sales strategies as having any value even when they are the key success to generating sales and company growth. In contrast, financial statements record inventory. More inventory increases the assets on the balance sheet and the value of the company. Yet it was the lack of inventory which often created the sales frenzy to drive the growth and value of these companies.
How does your company sell its products? Is there plenty on the shelf or limited supply in hot demand? How do you sell yourself?
©2012
Mary Mershein, CA is a professional accountant with a master’s degree in management who believes common sense is our greatest financial analysis. Additional common sense can be found at www.moosemoney.wordpress.com.
Lululemon shares were $2 in 2007. Five years later they were $76 and the company was worth $10 billion. One reason for the growth was the creation of "scarcity" in which stores kept only a limited supply of merchandise. Low inventory levels forced customers to buy or lose out when the item goes out of stock, creating a buying frenzy. Lululemon also rarely sold items on sale, even charging over four times the price of similar items at the competition.
Costco was the first company to grow from zero to $3 billion in sales in less than six years. As of Feb 26, 2012, net sales for the first half year were $44 billion. Similar to Lululemon, Costco carries many items for a very limited time, encouraging customers to buy while they can. Costco does not carry multiple brands or products whose cost is too high, even if it’s a popular brand such as Coca Cola. Costco also does not stock extra bags or packing materials. Products are delivered to stores on shipping pallets and displayed that way, rather than arranged beautifully on shelves. There are also long lineups at the cashiers, hefty membership fees and the inconvenience of buying items in large bulk sizes.
In 1919 the first Loblaws grocery store opened using a new retail concept called self-service, the opposite to the traditional full service. Under full service, store employees fetched items for customers, weighed items and calculated the total purchase. The total was then added to the customer’s account for later payment. Home delivery was usually included free of charge. Under the new self-serve model, customers browsed freely throughout the store, picked-up their own goods without the aid of a staff person and then paid at a central cashier. There was no payment on account or home delivery. As with Lululemon and Costco, popular items might not be in stock to encourage customers to come again. Despite the lack of service, Loblaws is now Canada’s largest grocery store chain. On Dec 31, 2011, Loblaws had annual net earnings of $769 million on revenues of $31.25 billion.
Selling at an inconvenience. Refusing to sell. Selling out. Self-selling. High price selling. Low price selling. Selling directly from shipping pallets. Selling memberships. Creating urgency to buy through scarcity. These are all NOT the typical sales tactics of a traditional retailer where full service with plenty of convenience and a variety of in stock products arranged beautifully on shelves are the norm. Yet, these tactics drove these companies to success.
Accounting does not record sales strategies as having any value even when they are the key success to generating sales and company growth. In contrast, financial statements record inventory. More inventory increases the assets on the balance sheet and the value of the company. Yet it was the lack of inventory which often created the sales frenzy to drive the growth and value of these companies.
How does your company sell its products? Is there plenty on the shelf or limited supply in hot demand? How do you sell yourself?
©2012
Mary Mershein, CA is a professional accountant with a master’s degree in management who believes common sense is our greatest financial analysis. Additional common sense can be found at www.moosemoney.wordpress.com.
Tags: attracting business, ethics, Jamie MacDonald