"Why Be Open 7 Days When Only 4 Are Profitable?"

As we have all read and heard - repeatedly - it has been a VERY tough couple of years for independent retailers everywhere. Lack of willing customers, narrower margins, inability to get traditional bank loans, huge increase in on-line competition, etc., etc. has been brutal on thousands of retailers.

With all that doom and gloom around us, it's a special thrill to tell the remarkable turnaround story of one brave retailer. We've been asked by The National Retail Federation to present this case on January 11 at their 100th Anniversary EXPO in NYC at the Jacob Javits Center. (If you are going to be there, please come by to meet our client, John Whisler, one of the Co-Owners of Kitchen Kaboodle.)

Here's the copy that The NRF is using to describe our presentation:
"Why Be Open Seven Days when Only Four are Profitable?!"

This session will feature a real-life case study in creative crisis management, and how challenging conventional wisdom can help the independent retailer serve their best, most profitable customers with the products they want, at the prices they want, and the times they actually want to shop.
Speakers:
Patricia M. Johnson and Richard F. Outcalt
Co-Founders; The Retail Owners Institute®

And if you cannot be there, here's the gist of the story:

At the moment of steepest economic free-fall, their bank abruptly called their loans, their attorney described Chapters 7 and 11, the owners' respective homes were pledged, it was February and slowest time of the year, their vendors were anxious to get paid, and their 100+ employees were trembling with the uncertainty.

Yet, the owners kept their cool, created a never-been-done-before plan, disregarded the nay-sayers, and then executed it like the pros they are. (Eight months later their industry presented them with a "First-in-America Award for Innovation"!!!)

For 2011, we wish you the kind of strength, fortitude and vision that this retailer displayed. We all need to keep our eyes on the horizon and not be focused on the rough waters around us.

Retailers: STILL on the sidelines about "social media"? Watch this!

"The Entrepreneur's Pledge"

The Kauffman Foundation for Entrepreneurship, based in Kansas City, has been helping entrepreneurs leverage their ideas for many years. Their "Entrepreneur's Pledge" certainly resonates with us. It captures the essence of the people we had in mind when we began building The Retail Owners Institute®.

The Entrepreneur's Pledge, from the Kauffman Foundation of Entrepreneurship

I AM

• an entrepreneur
• following a dream, pursuing an opportunity, taking charge of my own destiny.
• bringing something of value to society, making a job for myself and for others, and creating wealth that benefits my family, my community, my country, my world.
• one of a movement of millions of entrepreneurs and innovators who made America great, and who will keep our country going...and growing.
• what I am, because many people have helped me along on this journey.

THEREFORE, I WILL

• tell my story, sharing my successes and failures, so that others taking the entrepreneurial path can learn.
• strive to mentor an aspiring entrepreneur.
• make my voice heard by those who make policy decisions that affect me and my business.
• appreciate and celebrate my accomplishments, and the accomplishments of my fellow entrepreneurs.
• give back to the society that helped me to be successful.
• build a stronger America.

Retailers: Do YOU Use "Tricks and Traps" with Your Customers?!?

A columnist for the Tribune Newspapers, Gregory Karp, is warning consumers to beware of today's oh-so-crafty retailers:

"They're using the latest research and high-tech tactics to appeal to your subconscious, in efforts to get you to spend more than you planned.  A consumer's best defense is to be aware of these head games and be a more mindful shopper."

What "head games" are  impressionable consumers to guard against?

• "Luxury cues" - visual cues in displays that connote success, triggering a shopper's desire for luxury indulgences
• "Sensory stimulation" - retailers who effectively use lighting, music and fragrance to influence buying decisions
• "Live models" - shoppers apparently are more likely to buy clothes that look great on a real person than on a mannequin
• "Clever salespeople" who can upsell, and will use "sincere flattery" to make a sale as well
• "Online tactics" - suggesting related purchases, and/or having a deadline on a special price

Hmm.  This is what we (admiringly!) call "the theater of retailing". Creating an engaging shopping environment for your customer.  Or, it's what others call "good customer service".  

In our view, to warn consumers that these are "tricks and traps" reflects an enormous lack of respect for today's shoppers.  Plus, it suggests that retailers are able to dupe unsuspecting customers into unwarranted purchases. 

That is simply not the world of retailing that we know.  Instead, we see retailers working very hard to deliver on the deceptively simple basics: Having the right product at the right place at the right time for the right customer.

No tricks. No traps. Just respect for the customer, respect for the merchandise, and lots of hard work.

Flexibility Is Prized, Especially by Hourly Workers. Make It Your Competitive Edge.

Retailers have the opportunity to make "permanent part-time" positions even more advantageous to the stores and the employee. It could become your competitive edge for attracting and keeping the best employees. Here's why.

Even in this tough economic situation, there are people who want only part-time, hourly work. This includes parents of school-age children (who are not the sole breadwinners, but the "supplementers") and university and college students (of all ages).

However, these people may need flexibility (e.g., last minute changes) in their schedule. If you can provide that time-shifting flexibility, they often become the most loyal employees, according to Working Mother magazine.

Retailers are well-positioned to attract and retain these potential loyal workers. But it might require some revamping of the usual-way-of-doing-things.

Remember, your staff who are on salary can come in early and/or stay late to compensate for a parent/teacher conference or taking an aging parent to the doctor. For an hourly employee to have this flexibility, they typically must trade hours with colleagues. That makes it the employees' problem, and, adds another layer of complexity to the solution. Plus, employees may feel it is "inappropriate" to have repeated requests for changes.

That culture has to change. And fast! It starts with R-E-S-P-E-C-T for the real-life demands of all your employees, not just those on salaries.

How to make the scheduling work for all your workers and for your customers? Start first by asking your hourly staff. They will have some very practical insights.

Then, with their good input, your good intentions, and today's scheduling software, keep experimenting with different approaches until you get the one that serves you best.

Flexibility in scheduling - and respect from the employer - is prized by hourly employees. What the retailer gains in return can be tremendous loyalty. (And yes, breaking the attract-hire-train-repeat cycle can save costs.) What a competitive edge for your stores going forward.

Look, Sam's Club Is Re-Inventing Banking!

Oh my. Once again, our premise holds true: "Retailing is a mirror of society."

All sorts of traditional loan facilities have either dried up or become so very arduous that potential users are discouraged. And this dearth of debt availability - the credit crisis - shows no sign of ebbing.

"Okay," says Sam's Club, "we need to give our customers what they want, in this case, SBA-backed term loans of up to $25,000." And their pilot program has already loaned to about 100 small businesses. Cool, eh?

What we love is watching the competitive juices roil at Costco, Staples, Sears, Office Depot and others. "Let Sam's Club have this 'loyalty program' all to themselves?! Are you mad? No way!"

Banking isn't going away. It's just (finally!) being re-invented, in this case, by retailers who are listening closely to their customers.

My, but this mirror of society can foster some fascinating adjustments, and business opportunities.

Re-Negotiating with Your Landlord? Consider This Innovative Concept

Your retail business has survived to date, thanks in large part to your guts and guile. You have slashed expenses, controlled inventory like never before, and cut deals with vendors and landlords.

As "rent relief" expires, however, retailers are finding landlords much less flexible. (They have financing issues of their own, and are feeling the same cold shoulders from banks as retailers do.)

So, here's an idea for you to use with your landlord. Create an agreement that allows you to pay your rent on the same seasonality as your sales. We are not talking about percentage rents (which essentially accomplish the same thing). Instead, we're proposing "seasonal rents."

That is, for retailers not paying percentage-only rents, monthly rent is a fixed, flat cost per month. Each month's rent payment is 8.3% of the year's total rent.

However, revenues from retail sales are not a flat amount each month. Retailers instead have exceptional seasonality. Each month's sales as a percent of the total year can range from 5% to 20%+.

Our recommendation? First, prepare a spreadsheet for your landlord that summarizes the expected seasonal spikes in your revenues. (You can easily develop this from your pro forma P&L for the year.) Here is an example from one retailer:
(Notice how not even one month calculates to the "average" of 8.3% per month!)

Monthly Sales as a Percent of Total Sales
Feb - 5.7%
Mar - 6.6%
Apr - 6.3%
May - 7.5%
Jun - 6.9%
Jul - 7.2%
Aug - 7.2%
Sep - 6.3%
Oct - 7.6%
Nov - 10.2%
Dec - 20.9%
Jan - 7.3%

Then, given the total rent for the year, agree to pay each month's rent on that same percentage scale. That's what we call "seasonal rent".

You still pay the same total rent for the year. You just are paying it on a schedule that is more suited to the realities of your cash flow.

Moreover, it may give you a better bargaining position with your lenders, because you likely will have a couple more months that show a profit. And it certainly gives you more flexibility with managing your cash flow.

This New Normal continues to demand flexibility. If you - or your landlord - aren't able to go to a percentage-only rent, then this "seasonal rent" approach may be a good alternative.

Let us know what you think of this idea. Your feedback is important to us.

What Do These Upbeat Retail Sales Results Really Mean?

Retail sales results for February have come out, and two major tracking services - Retail Forward and the International Council of Shopping Centers - report that comp store retail sales rose at least 3.7% in February: "their best monthly gains since the economy began its meltdown in November 2007." (In fact, we believe that is the sixth straight month of sales increases!)

Then, ShopperTrak reported that while sales were up in February vs LY (just 1.2% on their numbers), shopper foot traffic was down 3.1%. So, either average transactions were higher, or retailers were better at converting shoppers to customers. (Our bet is on the latter: motivated retailer meets purpose-driven shopper!)

What do reports such as these mean to independent retailers? Especially since they are reporting results of major national chains.

Well, we believe they do matter in several ways. First, they provide yet another benchmark against which to measure your own stores' performance. How were your February sales? You now have some context for assessing your own progress. (And maybe feel a bit better about what you did accomplish!)

Second, it provides insights into how consumers are feeling. Maybe "Frugal Fatigue" is in fact becoming more prevalent. For the 90% of the population that still have their job, they may be gaining some confidence that it is okay to spend.

No question, the spending that does occur will be much more purposeful and restrained than 2007. There is no going back to that! But those retailers who have edited their assortments to better match what their very best customers want will be well positioned going forward.

Even better prepared are those retailers who have been analyzing more than top line sales numbers. When sales are down, why? Fewer transactions? Smaller average transactions? Fewer items per transaction? These insights can be powerful for planning your store's progress in this New Normal.

Third - and perhaps most important about benchmarks - the financial community is reading these reports as well. Bankers and the credit departments of your vendors should be encouraged by these positive signs. In your discussions with them, be sure to have armed yourself with the most recent perspective on consumer confidence.

Remember, unemployment is a lagging indicator of the economy; consumer confidence is the leading indicator, particularly for retailers.

Needed Now More Than Ever: A Bank for Retailers

The SBA is extending its incentives to banks to lend. What will it take for those funds to be available to retailers? They sure haven't been so far.

Many independents need to replace their legacy POS system. Upgrade other technology. Remodel. Create a more exciting "customer experience." Add in-store video/digital signage. Switch to different merchandise categories and vendors. Provide more training for their staff. Conduct data-mining of their customer lists. Redesign their website. Add e-commerce capability. Well, you get the idea: retailers must catch up to retailing in 2010!

Each of these things creates or sustains jobs, both for the retailer and their suppliers and service providers. All of them and others have to do with the on-going reinvention that must occur in retailing.

However, it seems that retailers continue to NOT be on the safe, defensible list of credit-worthy businesses. Why? Isn't there at least one bank somewhere that will fill this vacuum?

The economic meltdown of 2008 occurred at a particularly punitive time for retailers, who already had their Holiday merchandise purchased. They had no alternative to deep, deep discounts, with the resulting losses. (Seasoned retailers know, when you have to choose, cash is ALWAYS better than profits. "Halitosis is better than no breath at all.")

Then, as 2009 wore on, retailers tried to recover, but many found their oxygen supply cut off. That is, banks slashed their working capital lines ("Look at these losses each month," they would say in June, July, August, September) as the retailers struggled to weather the Great Recession.

So, just when retailers needed to be purchasing for Holiday 2009, their ability to buy was further stifled. Holiday sales (and profits) were constrained, placing even more financial pressures on them going forward. The historically slow months of the winter and spring of 2010 cannot make up for the lost opportunities of the Holiday season.

In our experience, retailers have done a fine job of focusing on "the controllables" in their business. That is, they have better managed their inventory, cut expenses, and otherwise shown great "street smarts" and survival instincts. In particular, they are highly motivated to continue to provide jobs for their employees.

However, it is the uncontrollable variables that continue to punish them. Chief among these uncontrollables is access to working capital...from any bank, anywhere!

In our view, there are retailers who deserve to be the Poster Child for the SBA. Where are the banks who can recognize that promise?

Believe It or Not...SBA Loans for Retailers

Common wisdom is that banks are not lending, especially to independent retailers. "Ah, those deadbeats!"

Well, last week we did what you could do. And guess what happened? We were amazed that four banks out of four initial bank meetings took great interest in potentially loaning over one million dollars to a client of ours!

For perspective, here's a little of the background to this discovery. Our client has five stores and does about $9MM a year. (They do not own real estate.) Because they've had three years of losses, their bank of ten years has moved the account into "special credits" in order to liquidate the loan balance and/or exit our client from the bank altogether. Pretty typical of the times, we'd say.

Then recently we've become aware, as you no doubt have, that the Federal government has relaxed some of the onerous conditions around the SBA loan guarantee program, specifically "7(a)". As you can do, we had our client download the SBA's loan application form, provide all of the requested info, and then have Kinkos make nice bound copies.

Meanwhile, we found on the SBA site about seven community banks that had "PLP" status; they qualified for the SBA's Preferred Lender Program. Next, we got four of them to meet with us last Friday "for no more than 60 minutes", we promised. When they heard our request and were handed the completed SBA application, all four essentially said, "Well this is very interesting to us. We're looking at the retail sector now as a way to diversify our loan portfolio from real estate loans we currently have on the books."

"Oh, really", we exclaimed. "How sweet is that! Do other retailers know about this availability?" None of them were forthcoming with an answer. So we're taking this blogosphere route. Get the word out! The Feds aren't going to keep this liberal SBA program going forever!!

Let us know if we've helped you.

A Tough Message for Tough Times

On Wednesday, the 13th, in Anaheim we are speaking to "the best of the best" in the music retailing industry. We believe the topic of our 90-minute presentation is SPOT-ON, as they say.

After considerable discussion with the group's leadership, it surfaced that the greatest threat to these retailers was not all the issues that get media attention, but was a rather spooky surprise: Mid-management people, those who must execute better and/or differently, often don't truly understand WHY they should embrace change.

What's needed now is balance sheet appreciation. Survival is balance sheet strength; nothing matters more. Nothing! And mid-management that does not clearly understand how to improve a Debt-to-Worth ratio should be rapidly trained or more rapidly replaced. It's as simple and urgent as that.

Google and Amazon As Retailers?!?

Amazon's best-selling holiday item was its own Kindles. And now Google is selling its Nexus One smart phone online, directly to the customer (bypassing Google's previous customer, the phone carriers.)

Yep, selling to the ultimate consumer IS the definition of retailing. Increasingly, manufacturers assume that only they can "do justice" to their product line.

We all know what these companies are trying to do. They have immense confidence in the merits of their respective products, and they think retailing is easy. But it's not just the product. And retailing isn't easy.

The real test is whether these technology giants-turned-manufacturers-turned-retailers actually can be merchants? That is, can they consistently provide value to the customer?

Value: the benefits received for the burdens endured.

In our view, Google and Amazon are asking consumers to assume most of the burdens in these transactions.

• Go to the website, learn about the product, choose the item
• Ring up the transaction; send the money to us safely
• Be available to take delivery of the product
• Have questions? Use the online help forums.
• Have a return? Box it up and send it back.
• And "trust us" about receiving the credit.

Remarkable cost savings for the manufacturer. All those burdensome "retailing" issues have been shifted to the customer. Granted, maybe 10% of the market will think this is wonderful. No muss, no fuss.

Still this nagging question: Will the rest of the customers willingly endure these burdens?

Hasn't Apple proven that there's a role for storefronts "for the rest of us"?