Today's Gift Retailer

The annual Gifts & Decorative Accessories Retailer Comparison Survey is designed to provide the specialty retailer with an industry standard by which you can measure your own business. The survey was mailed to specialty retailers during the month of January 2002. Respondents were asked more than 30 questions about the operation of their stores during 2001. Topics covered included merchandise mix and pricing, product sourcing and selling techniques, advertising and promotion, and employment practices.

First, a look at the retailers who responded:

• 97 percent own their own store.
• 88 percent operate only one store.
• 58 percent have been in business more than ten years.
• 36 percent draw on a population of less than 50,000 in their trading area.
• 40 percent draw on a population of more than 100,000 in their trading area.
• 23 percent have annual gross sales of less than $100,000.
• 64 percent have annual gross sales of between $100,000 and $1 million.
• 58 percent own stores that are 2,000 square feet or smaller.

The survey also reveals a great deal about how these retailers operate their stores..

• 50 percent carry at least ten different product categories.
• 58 percent said that their best-selling price point in more than half their product categories falls between $10 and $20.
• Their highest turns (an average of four per year) come from memory products, personal care and aromatherapy products, plush, stationery, and greeting cards.
• Cash sales predominate, but credit card sales are about 41 percent larger, based on an average sale.
• Advertising and promotion expenditures have remained stable at 5 percent of annual gross sales compared with last year's results. Newspaper advertising and direct mail dominate the spending, virtually unchanged from last year's survey.
• The median number of employees per store is five, including the owner. Most staffers are part-timers.

More than two thirds (68 percent) of retailers keep their stores open between 40 and 60 hours per week. Some 25 percent operate more than 60 hours per week. During those hours of operation, retailers report a median of 380 customers visiting their stores in an average week. Of those customers, a median of 184 make a purchase, which translates into a 71 percent close ratio.

Most of these retailers (98 percent) indicate that they use the store's cash flow to finance their day-to-day operations. Other financing sources include credit cards and manufacturer's terms, used by about two-thirds each, and personal financing and bank loans, cited by a third each. As for the most important source of financing, a substantial majority (86 percent) place the store's cash flow at the top of the list.

Gifts and decorative accessory stores offer a merchandise mix that is both broad and varied. This year, stationery/greeting cards joined collectibles in capturing more than 10 percent of total sales volume. Only four others — candles/candle accessories, holiday, plush, and jewelry — continued to account for at least 5 percent of sales, unchanged from last year.

Retailers continue to experiment with their merchandise mix to differentiate themselves from their competition. Ten product categories are carried by at least half of the retailers responding to the Gifts & Dec survey this year, compared with nine that were carried by at least half the retailers last year, and the 13 for the year before.

The same five categories were the most frequently carried for the past three years, with one new addition this year. More than three-fourths carry candles and candle accessories, and stationery and greeting cards. Other categories appearing among the top five include photo frames, collectibles and holiday, and plush products, the new category among the top five this year.

Product variety dictates dealing with a variety of vendors. The median number of lines carried in any particular product category ranges from one to eight. For about half the product categories, the median number of lines carried is either two or three. For ceramics/pottery, handcrafts, jewelry, and stationery and greeting cards, the median number of lines is four; for gourmet foods, housewares, and collectibles, five; and for tabletop, toys/games/puzzles, the median is six. Retailers carry the most lines in holiday products, with a median of eight.

The best inventory turns come from stationery and greeting cards, photo frames, plush, and personal care and aromatherapy products. Three of these top four inventory turners — stationery and greeting cards, photo frames and plush — are also among this year's top five product categories carried by retailers. At least in part, their popularity can be explained by their profitability as measured by stock turns. All four have the highest average annual stock turns of any category carried by gifts and decorative accessories retailers — a median of four. Closely following these four were candles and accessories, with between three and four annual stock turns. Average stock turns reported for other product categories ranged between one and three.

The diversity of products carried by gifts and decorative accessory retailers translates into a dizzying range of price points. In the survey, retailers reported their best-selling price points. At the lower end of the price point spectrum — under $10 — they put stationery and cards, gourmet foods, giftwrap/partyware, and memory products. At the opposite end — price points of $30 or above — are accent rugs, gift baskets, and wall art. More than half the products, 17 of 29 different product categories, have best-selling prices between $10 and $20, evidencing a slight dip from the 19 categories reported last year. Retailers said that their best-selling price point for wall art was $50, the highest price point reported among all the product categories.

More than half (56 percent) of the surveyed retailers indicated that their average mark-up was calculated by multiplying the product cost by two. Another two-fifths use two and one half times the product cost as their mark-up.

More than half (51 percent) of retailers say they attend two to three trade shows each year; nearly a third (30 percent) go to four or five shows each year. About a tenth manage to get to six or more shows a year, while another tenth can only attend one. Retailers also accommodate visits from sales reps, with more than two-fifths of the retailers seeing more than 60 sales reps each year. Almost half (44 percent) of the sales reps that visit represent less than ten different companies. More than a third (38 percent) represent 10 to 20 different companies. In addition, more than half (54 percent) of the retailers surveyed say they use the Internet to research manufacturers' products. Among those who do, more than half (56 percent) visit manufacturer's Web sites less than once a month.

On average, customers paid cash (check or debit card) for over half (56 percent) of their purchases, down slightly from three-fifths of sales reported in last year's survey. A little over two-fifths of sales were paid for with a credit card. Generally, the credit card sales rang up higher tickets (a median of $45) than cash sale (a median of $32).

Holding sales to attract consumers and to dispose of outdated or slow-moving product is a frequently used marketing strategy. The frequency of sales this year was similar to the results reported last year, with one notable exception: The number of those having an annual sale rose from 16 percent to 25 percent. Only 3 percent report never having a sale. A quarter report at least an annual sale, while more than a third (38 percent) hold a sale of some type twice yearly. Almost another quarter have a sale at least four times a year. Nearly a tenth (9 percent) told us that they have a shelf, rack, or corner of the store where a continual clearance sale is underway. Median markdowns during sales run 40 percent.

The Internet continues to play a role, albeit a minor one, in gifts and decorative accessory stores. The number of retailers experimenting with taking online orders went from 13 percent in 1999 to 22 percent in 2000, and then back down to 19 percent in 2001. For those selling online, the percentage of sales derived from the Internet is small — a median of 5 percent, the same as in 2000 but higher than 1999's median of 2 percent.

The numbers for catalog sales are even lower than for Internet sales. Only 8 percent of retailers offer catalog sales, with a median of 2 percent of their sales coming from catalog orders.

Ad budgets have remained stable over the last three years, with retailers reporting a median of five percent of their annual gross sales earmarked for advertising and promotions. More than half (56 percent) said their ad spending will be about the same amount during 2002 as it was for the previous year. Retailers allocate their ad budgets across an array of media. The largest proportion — more than a third – is dedicated to newspaper advertising, just as it was last year. Next in line for ad dollars was direct mail with more than a quarter (26 percent), up from 22 percent last year. Allocations for Yellow Pages and special events dropped slightly (only 1 percent) from last year's allocation, comprising only 9 percent and 8 percent respectively, of retailers' ad budgets. For nearly two-thirds of the retailers, ads are most often prepared by the store or store owners. Ads prepared by publication or station staff are next in popularity (16 percent), followed by ads designed by outside agencies (11 percent).

The number of retailers using direct mail in 2001 held steady with last year's results, moving down just one percentage point (67 percent). That's significantly lower than the 76 percent who reported using direct mail in 1999. That drop can probably be explained by higher mailing costs in 2000; that will occur again during 2002.

On average, about a quarter of advertising and promotion dollars were allocated to direct mail in 2001, up slightly from the 22 percent spent in 2000. The majority of retailers use direct mail either once or twice yearly or three to four times a year. About a third say they send direct mailings only once or twice a year while about two-fifths sent mailings three to four times, a pattern that has held true for three years now. The number of retailers who mail every month continues to increase, rising by three percentage points in 2001, following a similar increase in 2000. Every-other-month mailings dropped by 3 percent this year; it had increased by the same amount in 2000.

Retailers report using variety of sources for their mailing lists. Guest books and data from checks and credit cards still rank at the top as sources. They also choose from many different kinds of direct mail pieces to send. Foremost are sales or special event announcements, used by more than half of all the retailers, followed closely by newsletters or flyers, used by slightly less than half. More than a quarter sent discount coupons of some type as a mailing, while just under a fifth mailed out catalogs of products.

Special events are an important and relatively inexpensive method retailers use to attract both new and repeat customers to their stores. Open houses and holiday events still top the list, with open houses the most frequent type of special event held. In both 2001 and 2000, four-fifths of the retailers surveyed said they hold special events, compared with two-thirds in 1999. On average, about 8 percent of ad dollars are allocated to special events.

Part-timers make up about two-thirds of the total staff in gift and decorative accessory stores. During peak seasons, three-fifths of the retailers employ additional sales staff. More than three quarters add additional sales employees for the holiday season. Retailers report adding a median of two seasonal sales employees for their peak seasons.

Gift and decorative accessories retailers allocate a median of 16 percent of annual gross sales to payroll, with another 5 percent going to fringe benefits, an increase over the 12 percent and 3 percent reported for last year.

Annual salaries for full-time sales staff fall between $15,000 and $20,000 and $20,000 and $25,000 for about a third of the retailers each; the median annual salary is $20,000. Almost three-quarters of full-time sales employees work 40 hours a week or less. Half of the part-time sales staff earn less than $7.00 per hour; the median pay rate is $7.13. Two-thirds of the part-timers work 20 or fewer hours each week.

Merchandise discounts remain the most frequently offered fringe benefit for all sales employees, and for the majority it is the only fringe benefit given to part-time sales staff.

This year we questioned retailers in more detail about family members working in the stores. For the family-owned stores, almost two-thirds use the store's income as a secondary source of income. For a fifth of the retailers, the store represents their only source of income. Storeowners revealed that over half pay themselves on a regular schedule while just over a third (38 percent) pay themselves periodically out of profits.

The survey findings are based on the responses of 114 gifts and decorative accessories retailers operating across the country, with 20 percent in the Northeast, 28 percent in the South, 19 percent in the West, and 33 percent in the Midwest.

A majority (78 percent) of the retailers characterized their store as a gift specialty store. Home accessories, stationery/card, toy/hobby, or some other combination made up the remainder. Only three percent were either a franchise or a publicly held company; 97 percent of the stores are independent or family-owned.

Judi Fulbright was lead researcher for the survey, conducted by Gifts & Dec's market research department. If you are an independent gift and decorative accessory retailer and would like to take part in future surveys, please send your name, address, and telephone number to Judi Fulbright, Reed Business Information, P.O. Box 2754, High Point, NC 27261, or fax it to her at (336) 605-1143.