Shrinkage Happens. Don't let it impact hotel retail profit!
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.
Too many managers desperately try to eliminate shrinkage by:
Locking down products
Placing small orders when supplying the store
Eliminating important product categories
Mistake #1. If I lock all the back stock 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/mo 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 back stock cabinet, and steal a case of what is sitting right there on the shelf! Make back stock 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 #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.
Here's some quick math skills on this situation:
You dispose of 10 expired bags of Doritos, Nacho Cheese, 2.875 OZ (avg cost .87 each)
Loss = $8.70. Option 2.
You run out of Doritos, Nacho Cheese, 2.875 OZ which averages 3 sales
per day at a retail price of $2.50. You wait 5 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 that 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.
Bonus Tip: ImpulsePoint 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 #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 2nd 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 ImpulsePoint data, the average hotel pantry carrying an iPhone charger sells 6 per month at a retail price of $25 for $150 in monthly sale and adjusts one per month out of inventory for damage or theft at a Cost of Goods of $12.
Loss = $138.00 in revenue to save $12. (plus - 6 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.
The average Select Service hotel pantry properly tracking inventory and correctly pricing their retailis earning $2,800.00 per month in sales with 60% profit. The average Full Service gift shop is doing $7,000.00 per month in sales wit 64% profit.
If you aren't making the above mistakes and you still are not generating anywhere near the numbers we know you can achieve, give us a call. We can probably help you figure out why. We love this stuff.
Get a free hotel pantry retail analysis.