Are Retailers "Technology Laggards"?

We know four multi-store retailers (in 4 different geographic markets and retail segments) whose cash flow problems have landed them in the Special Credits department of their respective banks. In each instance the owners have personal guarantees on the loans. And given the economic crisis, whether any of these businesses can survive is still in doubt.

As we reflect on these 4 very distinct businesses, we recognized one shared trait: they each have very old, cumbersome systems.

• Some struggle even to get monthly P&Ls (and therefore find out many months too late how great their losses are).
• Others have very difficult purchasing systems (which tempt the buyers to place larger, less frequent orders, thereby slowing turns...and making their cash flow problems even worse.)
• In every instance, the Owner – and thereby the business – is dependent on essentially one person, either the controller or the custom software developer, for coaxing reports from the systems.

We've heard all the rationales for why this happens. Updating systems is seen as an expensive and time-consuming project, so many retailers are happy to defer that to another day. Others convince themselves that their particular segment is "very unique", and therefore the cost to have something custom-built would be prohibitive. Or, whatever custom-built solution they have had in place for the last 15 years would be impossible to replicate with current off-the-shelf solutions.

Here's the issue: Retail businesses with outdated systems are less able to spot problems in advance. And, once a crisis hits, they are less able to adapt and respond.

As the Owner, you are responsible for the survival of the business. Do your systems provide you with the appropriate information, when you need it?

Going forward, the only retailers who are "technology laggards" are former retailers!

Retail Survival in the “New Normal”

The "New Normal". It is tough and demanding. The temptation for many store owners is to return to “managing in tough times” approaches. Slash expenses, put in more hours yourself, extend suppliers, and cut back on inventory purchases. Unfortunately, even if you can do these things, it is likely they won’t be enough. Sorry, but those “tried and true tactics” may not be sufficient in the New Normal.

Here is why. Those old standbys are focused almost exclusively on the income statement (also called the profit and loss statement, or P&L.) What is needed in the New Normal is this: You must dedicate your attention to that other part of the financial statement you receive from your accountant or bookkeeper: the Balance Sheet.

As Owner, your #1 responsibility is the survival of the business. Therefore, you need to put considerable thought and energy into your Balance Sheet. You must steer your Balance Sheet with at least the determination you have been steering your P&L. Effectively controlling a retail business in the New Normal must start with – and tirelessly stay focused on – your Balance Sheet.

The Balance Sheet is the most telling measure of the financial strength of your business. Without financial strength, your retail operation lacks staying power, and could be flattened like road kill.

Retail Dealers: What Will It Take to Survive This Financial Crisis?The Answer: C - A - $ - H!

Your #1 responsibility as a retail owner is the survival of your business. Here is a 4-Step Survival Plan that you, as Owner, can put into practice right now.

1. CONSERVE Cash
2. RAISE Cash
3. FIND MORE Cash
4. Start with Step #1 again!

Remember, especially in this economic environment, the "old rules" no longer apply. Lenders, vendors, landlords, and yes, even employees, are more open to negotiating. This is the time to find new win-win situations.

Where's Your CASH FLOW Plan?
To control cash in your retail business demands an up-to-date Cash Flow plan. And we mean a basic Cash Flow, that you always have with you. Here are some key reminders:

• Cash Flow plans have just three basic parts: (1) cash coming in; (2) cash going out: (3) the difference.
• Cash Flow plans are projections. You are looking ahead a few months, at expected sales (cash coming in) and purchases and expenses (cash going out).
• It's just arithmetic! Just find the difference each month between the cash in and the cash out. Now, you can start to plan, manage and control the cash!
• Update your Cash Flow plan! It is a living, breathing tool. Many retailers do a rolling three-month or four-month plan. Others actually do a weekly cash flow.

The Top Five Killers of Stores (And guess what did NOT make the list?!)

Last year, every 12 minutes, a retail business in the U. S. failed. Over 5 failures per hour, every hour, every day, 24/7/365. What caused these failures?

#5. Out-of-control growth
#4. Out-of-control expenses
#3. Failure to manage Gross Margin
#2. Out-of-control inventory
#1. Being out of cash

Notice what's missing from this list? Not one mention of the "top line" - sales!

If there is any good news in this list, it is that the most damaging forces for retail businesses are in fact "controllable variables". Owners CAN control expansions and growth, expenses, inventory, and yes, even margins...all of which affect the availability of cash.

That's not to say these are easy choices; many are very anguishing. But especially in this economic climate, the most uncontrollable variable of all is the customer.

As Owner, keep focusing your resources, energy, and efforts on those parts of your business you can control. Happily, those are the ones that are most likely to enable you to survive!