Is Your Spirit Shop Actually a Retail Operation?

In Chapter 2, I discussed the textbook operation within a college bookstore and highlighted the significant potential for improvement, both in terms of service and profitability. Today, I will shift focus to the store’s Spirit Shop.

Institution Types and Spirit Shop Performance Benchmarks

There are three primary types of institutions: community colleges, public universities, and private universities. The main distinction among these, as it pertains to spirit shops, is the expected annual sales per full-time equivalent (FTE) student. This metric is a helpful way to quickly assess the effectiveness of a spirit shop. For comparison, I use the year 2017 sales/FTE results, as this year represents a pre-COVID-19 benchmark and reflects a typical operating environment. The following are the 2017 FTE sales figures by institution type:

Lease operations should be benchmarked by the same data.

*If an institution is an upper Division I, sales should be higher than indicated here.

Adjusting for Inflation and Contemporary Comparisons

To estimate what 2017 sales would be today, simply add the annual Consumer Price Index (CPI) for each year to the base figure. For example, with a 3% increase, $150 sales/FTE becomes $154.50. If a straight-line 3% CPI increase is applied (rather than compounding), the 2025 sales/FTE figures would be 24% higher than in 2017, resulting in expected annual sales/FTE of $124 for community colleges, $186 for public universities, and $248 for private universities.

While COVID-19 had a severe negative impact on sales, that period has now passed, and it should no longer be considered a valid reason for underperformance.

Assessing Your Shop’s Performance

At this point, I recommend reviewing your Spirit Shop’s annual sales from the past couple of years and dividing that figure by your institution’s FTE enrollment (excluding computer sales). If your sales meet or exceed the 2017 benchmarks, congratulations—no further action may be necessary aside from reassessing inventory levels.

However, for the 99% whose sales do not reach the 2017 figures, let’s continue.

Defining a True Retail Operation

It is common for institutions to assume they run a retail operation simply because they sell merchandise for more than they pay. A genuine commercial retail operation is much more complex. Key characteristics include:

• Selling goods or services directly to consumers
• Operating through physical stores, online platforms, or both
• Focusing on customer experience and satisfaction
• Managing inventory
• Managing pricing
• Developing merchandising strategies
• Engaging in marketing and promotional activities to attract customers
• Ensuring effective supply chain management for product availability
• Understanding operating expenses and expectations

Evaluating Current Performance (Color Codes)

The color codes used here represent my evaluation of how well current self-operated stores are performing relative to the definition of a retail operation:

• Green – Doing well
• Blue – Mediocre
• Red – Not doing a good job

A discussion of the “Red” items is essential.

Inventory: A Critical Challenge

Inventory management is a very serious concern. Many self-operated stores have significant excess inventory, often two to three years’ worth—while the expected inventory level should be four to six months. Excess inventory at this scale can severely and negatively impact store operations.

For example, consider a 4,000-student public institution generating $600,000 in Spirit Shop sales. A six-month inventory should cost about $150,000, but a two-year inventory (the unfortunate norm) is $600,000—a substantial difference.

This inventory level:

• Slows the ability to purchase new products
• Ties up university funds unnecessarily—$450,000 excess in this example
• Reduces gross margins due to frequent sales aimed at reducing inventory

Causes of High Inventory Levels

The main reasons for elevated inventory are a lack of understanding of basic retail fundamentals, such as:

• Knowing the basic quantity needs. Avoid “end column” pricing to reduce unit cost—use models like Open to Buy (OTB) and Min/Max procedures and stick to determined needs. Never increase quantities needed  just to lower costs.
• Understanding buying fundamentals, such as using the same logo across different items, which allows for smaller order quantities per item.
• Comprehending necessary reporting requirements in modern Point of Sale (POS) systems. Many buyers or managers are unaware of critical metrics—departmental gross margin percentage, markdown results, or anticipated margin impact on future marketing expectations, weighted average of cost of goods sold.

Strategies for Reducing Inventory

The quickest and most effective way to reduce inventory is to drastically reduce the stockroom size. Without storage space, excess inventory cannot be purchased. Over the years, I have closed many warehouses and large stockrooms, which has proven to be an excellent method for controlling inventory. Once inventory is reduced, start utilizing robust inventory control processes, such as OTB and Min/Max. This allows for the introduction of new items and quicker inventory turnover, ultimately increasing sales.

It’s important to note that rapidly reducing excess inventory will result in increased write-offs. However, if you choose to outsource the Spirit Shop, you will face the same financial impact, as no lease operator will purchase your store’s mistakes.

Merchandising Strategies

Merchandising strategies are developed to achieve specific objectives. While these objectives can vary, it is crucial to identify them and establish methodologies to reach them. Common objectives include:

• Reducing inventory
• Supporting particular campus activities
• Utilizing loss leaders to increase store traffic and boost overall sales
• Attracting groups such as clubs and organizations with volume discounts

A store’s strategy should be planned before the start of the new fiscal year. Each activity should have clearly defined goals, timeframes, supporting marketing efforts, and an after-action review to assess effectiveness. A true commercial retail operation proactively seeks business rather than waiting for it to come.

Understanding Operating Expenses Expectations

Knowledge of operating expenses expectations is essential. A store manager must comprehend the financial statement and the relationships among its elements. My experience suggests that many managers either do not understand these relationships or know the figures but not what they should be.

• Sales
• Cost of Goods Sold
• Gross Profit
• Operating Expenses:
• Payroll costs and benefits
• Store operating expenses (e.g., travel, maintenance agreements, shopping bags, etc.)
• Net Profit

Without understanding what the components of the operating statement should be, a store cannot be fully optimized. We have discussed target sales (sales/FTE). Cost of Goods Sold should be about 55%. Payroll is a significant concern and is frequently too high. While adding staff is easy, reducing it is more challenging. In recent years, sales have decreased, but expenses have not been adjusted accordingly. Although reducing staff is difficult, it is sometimes necessary. Without proper cost reductions, administration may opt to outsource, leaving the contractor to handle these issues.

Conclusion

In summary, do not assume your operation is truly retail simply because you sell products for more than you paid. Retail is far more involved. However, if the store manager sets clear goals for each of the key elements discussed here, both your customers and your Vice President will be much more satisfied.

In the upcoming final chapter, we will discuss how administrators can efficiently assess the performance of their stores, whether self-operated or leased. There is no need to wait until two weeks after the fiscal year concludes to discover that results fall short of expectations.

As an aside, Duvall Retail Manager has consistently supported self-operated stores in enhancing their operations to meet retail standards. Furthermore, we have developed and implemented highly effective RFPs for outsourcing. We would welcome the opportunity to assist you and your store.