Shrinkage happens, but don’t let it impact profit

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Have a question about how to maximize profits in hotel retail? Write to our editor at todayshotelier@naylor.com.

Don’t let your fear of theft hold you back from generating more revenue and meeting guests’ expectations.

by Janine Roberts

To be clear, this article has nothing to do with George Costanza’s late night dip in the pool – and everything to do with a variety of ways fearful managers unknowingly cost their hotel pantry revenue and guest experience to avoid the inevitable cost of doing business.

In hospitality, it is well-known that there are unavoidable maintenance and repair costs for removing chewing gum in the carpet and replacing broken lamps and stolen towels. Similarly, in retail, it is well-known that there are unavoidable shrinkage costs to operate a lobby store that occur from guest theft, employee abuse and product expiration.

Far too many managers desperately try to eliminate shrinkage by locking down products, placing small orders when supplying the store or eliminating important product categories.

Mistake No. 1
If I lock all the backstock cabinets, my guests can’t steal stuff!

Result: The front desk can’t replenish the shelves on their shift because they can’t find the keys or they just don’t have time to go grab them. They have a few minutes to restock shelves, and this just made it harder.

Potential cost: The average hotel pantry transaction is $5.25. Every time a product is unavailable, stores forfeit all or part of that revenue. By preventing a hotel sale just twice a day caused by lack of product on the shelf, hotels potentially lose more than $300/month in retail sales.

Smart hotel retail: Don’t sacrifice simplified restocking processes out of fear that a guest is going to walk into your store, reach into your backstock cabinet and steal a case of what is sitting right there on the shelf. Make backstock supplies easy to access for your associates so that it is quick and simple to replenish guest favorites.

However, studies do show that the majority of shrinkage due to theft occurs by employees, not guests. If your backstock is stored outside of the store in back office storage closets or on another floor, it is best to secure those items to deter employee theft.

Mistake No. 2
If I place small orders, I will lose less money when some of it expires.

Result: You run out of guest favorites before placing the next order because you were worried about an inevitable amount of product expiring. And what runs out first? Your top sellers, which can sit empty for days waiting for a new delivery.

JuneDoritosHere’s some quick math skills on this situation:

  • Option 1: You dispose of 10 expired 2.875-ounce bags of Doritos® Nacho Cheese chips (average cost of $0.87 each).
    Loss = $8.70
  • Option 2: You run out of Doritos® Nacho Cheese chips, which averages three sales per day at a retail price of $2.50. You wait five days for your next delivery.
    Loss = $37.50

 

Smart hotel retail: Option 1, all day long. Keep your store well supplied at all times, and accept that some shrinkage occurs. Keep enough product in backstock so your associates can quickly replace items that are selling. And remember! You are placing an order to replenish backstock – not your shelves! If you only order enough to stock your shelves, you will always find yourself wiped out when that soccer team bounces through the front door.

A custom point-of-sale solution will track exactly how many of each product you sell in a week/month/year, so you know exactly how many you sell – and exactly how many to order!

Mistake No. 3
We don’t carry that because it’s too expensive and it will get stolen.

Result: One of the most absent categories in hotel pantries is electronics because it has a higher cost of goods, and managers are scared of theft. But guess what? Guests also list this category as the second-most “appreciated” offering when they were in a pinch. If you don’t carry it, they can’t appreciate it when they need it most.

Cost: According to our data, the average hotel pantry carrying an iPhone charger sells six per month at a retail price of $25 for $150 in monthly sales and adjusts one per month out of inventory for damage or theft at a cost of goods of $12.

What’s the loss? $1,380 in revenue to save $12. Plus, you’ll have six disappointed guests who really needed an iPhone charger.

Smart Hotel Retail: Carry the items your guests need most! Period. If you’re terrified of theft, only put one on the rack and replenish regularly upon selling. Guests are happy – if not thrilled – to pay for a charger they lost and grateful that you have it there for them when they desperately need it.  ■

Janine Roberts is founder and CEO at Impulsify and has spent nine years passionately pursuing the secret to the successful hotel pantry. She works with thousands of GMs, franchisees, owners and brands to solve the challenges that limit retail performance in hospitality. Janine’s unique combination of skills results in unprecedented expertise in a niche of hospitality that generates over $300 million in annual revenue.

How does your retail stack up?

If you aren’t making these mistakes and you still are not generating anywhere near the numbers we know you can achieve, ask for some help to get you where you need to be.

Select-Service Benchmarking: $2,800 @ 60%

The average select-service hotel pantry properly tracking inventory and correctly pricing their retail is earning $2,800 per month in sales with 60 percent profit.

Full-Service Benchmarking: $7,000 @ 64%

The average full-service gift shop is doing $7,000 per month in sales with 64 percent profit.

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