Sarah Freeman, Head of Retail Finance, offers advice to convenience store owners on why and how they should keep investing following the next increase in the minimum wage.
During this week’s budget it was announced that The National Living Wage will increase in April 2019 for all staff aged 25 or more from £7.83 to £8.21 an hour. This represents a 4.9% rise, meaning the UK’s lowest paid workers will see their 38p an hour pay rise above current levels of inflation, equating to an annual increase of about £690 for a full-time worker.
This will put pressure on small businesses such as convenience store owners, whose margins are often tight.
Larger businesses will absorb the cost, by passing it on to customers or cutting spending elsewhere, but for smaller businesses, such as convenience stores, this is far more difficult. Smaller shops, already hard-pushed due to competition from major retailers moving into the convenience store market, discount stores and online shopping, cannot simply hike their prices or negotiate better rates from suppliers.
It is therefore likely that the increased wages will stretch the store’s finances more thinly and potentially eat into some cash reserves, leaving little money for ongoing investment in the store.
In such an environment it would be very tempting for store owners to cut back on high quality merchandise, on staff hours and certainly on any improvement plans.
However, this would risk becoming a vicious cycle in which the store makes less and less money, so spends less and less money and becomes less appealing to customers and so it goes on.
Store owners need to continue developing and improving their offering if they are to stay ahead of the competition and remain successful.
To compete in this marketplace, convenience store owners must ensure they have:
- Great stock at competitive prices with attractive promotions – This is a very price driven market so store owners must continue to keep their pricing as low as possible and offer great special deals. But equally important is the stock that is on offer. It needs to be varied, good quality and useful and offer some special one-off items that might be difficult to find elsewhere.
- Effective store performance management – Efficient store management is key to continued growth. With a decent IT system to analyse business performance, what is selling best and what is not, what days of week are busy and more, store owners can learn and adapt their offering to attract more business.
- A great shopping and customer experience – Create loyal customers by providing really stand out service. Give every customer a warm welcome, make a fuss of them and make them feel special. This way people will actively seek out your store. This is where the layout and design of the store is also key. An attractive appearance and appealing displays will encourage more people to enter and more people to buy.
- Motivated and well-rewarded employees – You are never going to be able to implement fantastic customer service if your staff are fed up. Find ways to reward employees for exemplary customer service – this does not have to cost much, which may be tricky if you are already stretched, but thing like gift cards when an employee reaches a certain milestone are a great idea. It is about showing your employees they are appreciated.
- Innovative products and services – Think about what additional services would set you apart from rivals and lure in more customers – whether it is a really great coffee machine and somewhere to sit down, or video game rentals. Invite ideas from customers and staff on what more your store could do.
The problem is that most of the above requires further spending. So, how to finance ongoing improvements and promotions while grappling with higher salary demands? The simple answer – borrow at good rates, with a realistic and well managed repayment plan, and continue to invest.
Sarah Freeman explains ‘For convenience store owners looking to unlock capital for investment, asset finance is the most obvious option, providing a lump sum upfront, which the store owner can then pay back in instalments over an agreed fixed period.
While banks usually assess a company’s assets and past performance when deciding to lend, independent lenders such as Henry Howard Finance tend to look at future potential and hope to build long term mutually beneficial partnerships. With careful planning convenience store owners can keep investing following the wage hike, without damaging their cash flow’.