5 Common Challenges to Running a Profitable Retail Business

Running a retail business comes with its own unique set of challenges. These are some of the most common ones, plus how you can work against them.

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The retail world is exciting and evergreen, but it’s no secret that there are ongoing industry challenges that create unique hurdles for running a retail business.

The retail industry can be a rewarding one, but turning a profit takes a lot of hard work, and most retailers face many of the same challenges.

We take a look at some of the most common ones to help you work through them and take some comfort in knowing that you’re not alone managing your retail business.

1. Juggling inventory overhead

You hear it time and time again: Overhead costs are usually the reason why retailers have to spend more money and increase their budgets. There is a fine line between ordering too much product and the ever-present fear of not having enough stock.

Too little inventory, of course, means you can’t make sales, but having too much stock eats away at production and storage costs.

With the retail buying calendar all but imploding in 2020, things such as production lead times and manufacturing cycles have drastically changed. Keeping close relations with your manufacturers is always a good idea, as you can leverage things like renegotiating minimum order quantities to make placing bulk orders lighter.

You can also employ made-to-order techniques or a waitlist method. With the waitlist, customers can place orders with you knowing that they are getting a product as soon as it's available. This means their item is produced after ordering it, which streamlines your inventory orders to be just as you need.

You also can employ markdowns and promotions to run through excess inventory. Be sure to check your profit margins and be judicious with discounts.

Remember, POS (point of sale) promotional discounts are short sales on full-price items that generally require a coupon or discount code, while markdowns are permanent price reductions. Once an item is put on markdown, you can’t bring it back to full price in your merchandising.

You also can explore retail arbitrage, the act of reselling items, to offload inventory and streamline stock. That may mean working with a third-party reseller or exploring off-price options to sell merchandise to vendors looking to purchase bulk quantities at a discounted rate.

2. Capturing leads

In order to convert people into paying customers, you first need to attract and capture leads. More importantly, you need qualified leads that fit the criteria to convert customers from prospect to sale.

When using digital marketing to capitalize on retailing opportunities, it is important to know that most e-commerce conversion rates average between 1% and 2%.

Your sales funnel should reflect an ever-narrowing journey that includes improvements to the shopping experience and plenty of touchpoints to nurture engagement.

A colorful marketing funnel illustration showcasing the journey to get a sale.

The customer journey along the marketing funnel follows a formula.



To gather leads, you can implement online advertising. Facebook, Twitter, Instagram, Google, and even Pinterest all have large social audiences that you can tap into while still narrowing your advertising field to the demographics that are most likely to interact with your brand, reducing unnecessary ad spending.

Remember that not only is target information important, but so is ad copy. For example, Facebook’s algorithm has been trending to prioritize keywords in ad copy over selected demographics in determining reach.

You can also capture emails via a newsletter subscription list, so you can more effectively send out promotional information. Offering a discount or downloadable content in exchange for registering an email is a great way to capture email addresses for your list.

3. Customer retention

Once you have leads that are converting into paying customers, common retailing problems evolve into maintaining the relationship and encouraging repeat business. Keeping customers engaged, informed, and active is the key.

It is more expensive to obtain a new customer than to keep an existing one, so once a lead has completed the conversion journey into a customer, it's all about keeping them warm in the pipeline.

Send out newsletters that aren't overly sales-y; instead, they should touch on something interesting. This technique keeps your client base engaged without feeling overwhelmed. Of course, you should also utilize emails to send out information on sales, promos, free shipping periods, new arrivals, etc.

Create a communication strategy for omnichannel marketing that ties together your social media, advertising, and email content in a meaningful way. You will want to adjust your messaging for each platform while still keeping the basic content and information the same.

Another great way to keep customers coming back is a loyalty bonus, whether in the form of gift cards for referrals, a "buy X times, get a discount" feature, or even automated discount emails. If you create perceived value in making repeat purchases, you are more likely to have customers continue on that journey.

4. Creating a good experience in a jumbled world

Today’s retail experience is not just about the physical brick and mortar experience, but the online e-commerce experience, too. The customer shopping experience is becoming more immersive, so having a seamless cohesion between your in-store and online brands is vital.

In the wake of COVID-19 and its disruption to the retail world, more and more businesses have recreated a more intimate shopping experience that customers have quickly gotten used to. This ranges from offering one-on-one appointments to loosening up return policies and curating subscription services that meet customer needs while reducing the amount of time they need to spend thinking about shopping.

Working to make a unique and personalized experience for customers doesn’t have to be as challenging as you might think.

5. Choosing the right technology

Retail technology and the right software for retail is a huge part of success in today's world. As the customer's journey becomes increasingly multifold, having software for inventory management, customer tracking, scheduling, accounts, etc. that work in sync keeps operations flowing smoothly.

Having, for example, a CRM that tracks customer purchases, updates onhand inventory, and sends invoice notifications to accounting streamlines your entire business.

Technology can even play a big part in optimizing loss prevention. You can use cameras to keep an eye on the store and your POS and dig deeper into inventory and transaction patterns.

Setting up good infrastructure early on in the form of technology and software will only make things easier for your business down the line.

Retail challenges create great opportunities

It is certainly daunting tackling the retail world. There is a lot of uncertainty around attracting and retaining customers, creating a safe and fruitful environment for them, and even streamlining your business itself.

But with so many options for communication plans, technology, and customer interactions, you have the opportunity to take those challenges and make them into something totally unique to your business, which does wonders for your ability to retain those customers.

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