This New Normal Demands New Strategies

Yes, We Know. We Have Previously Advised Otherwise...

For retailers needing money, Outcalt & Johnson and The Retail Owners Institute® have long advised these 3 key steps:

1. Make your business bankable
2. Keep your business bankable
3. And never expect your vendors to "bank" you!!  

That still is very good advice.

Problem is, in today's economic climate, banks simply are not inclined to loan to retailers of ANY size, shape, or form! (We know; we've been trying to help retailers get financing, but with little or no success.)  Yet, to fund growth, successful retailers badly need loans.

What's a retailer to do?

Adapt! Be like The ROI. Recognize that, in this New Normal, some vendors(!) may be willing to be your new "bank".

Of course, there are caveats! To borrow from vendors, retailers must:

• Do all of the preparatory work that they would do for a bank loan (Get a quick overview from this TOPICAL TUESDAYS webinar.)  

• Treat this proposed transaction as formally (that is, at arm's length) as you would with a difficult bank.

• Offer to the vendors personally guaranteed promissory notes for all loans. (Yes, folks. This is not slow pitch!)

• Prepare and share integrated Cash Flow projections for the year(s) the loans will be outstanding.

• Make darn certain that you repay these loans on time, or preferably, early!

• Remember, if you disappoint your vendors, your "lender of last resort", you're toast!  

Okay, for those of you with good memories who are about to shout "What?! You're now telling us to ask vendors for loans?!!", we reply, 

"Yes, that's true. 

Time's have changed, and so have we. In retail, as in life, adapt or perish!"

Chasing Sales to Raise Cash? Oops! How to Avoid that "Fateful Fallacy"

If you ask retailers, "What's the best way to improve cash flow?", almost every one of them will answer, "Raise sales!"  

Consider this retailer, who contacted us a few weeks ahead of his largest vendor putting him into bankruptcy:

"There's something wrong here. My sales are up in all three stores, and we had our best profit in years. But, I can't pay my bills on time."

That owner suffered from not knowing that profits and cash flow are NOT the same.

Plus, raising sales in an attempt to solve a cash flow problem may actually worsen cash flow! (Sadly, that's exactly what happened to that now ex-retailer.)

How to avoid this fateful - and potentially fatal - fallacy? Follow these 4 steps.

1. Understand the cause-effect connections of the financial levers in your business.
2. Focus on the controllable variables in your retail business, especially inventory.
3. "Turn on your financial headlights!" Use The ROI's online 3-in-1 INTEGRATED Cash Flow Calculator.
   Use it to play"what if...?" with different sales plans, margin assumptions, and turn rates. 
   See in advance which combinations will get you the outcome you want.
4. And remember, in a crisis, if you have to choose between profits or cash, always choose cash!   see more

Retailers: Have questions? Want answers? Join online TOPICAL TUESDAYS webinars - FREE

Success in retailing demands a competitive edge, and there are many ways to do that: product selection; pricing; customer service; location; instore "experience"; services; etcetera; etcetera.

But, retailers fail for only one reason: financial.

For eleven years, The Retail Owners Institute has been dedicated to providing any retailer, anywhere, with financial management know-how to avert financial failure. 

And now, that effort continues in yet another way. We are launching a series of TOPICAL TUESDAYS webinars for retailers. Led by Pat Johnson and Dick Outcalt, Co-Founders of The Retail Owners Institute, these are timely and interactive. And FREE!  

Free Registration is Now Open
Here are the upcoming topics. Register now for as many as you wish. Let your friends and colleagues know about them. And be sure to bring your questions!  

"Make More with Less! The Power of GMROI"
Tuesday, September 13 10 a.m. Pacific Time/ 1 p.m. Eastern Time/ 6 p.m. in London
click here for details &  free registration  

"Is My Store Failing, Or Am I Failing My Store?"
Tuesday, September 20 10 a.m. Pacific Time/ 1 p.m. Eastern Time/ 6 p.m. in London
click here for details & free registration  

"The BASICS of Open-to-Buy"
Tuesday, September 27 10 a.m. Pacific Time/ 1 p.m. Eastern Time/ 6 p.m. in London
click here for details & free registration  

"Will you have a profit…or a loss?! How to Know"
Tuesday, October 4 10 a.m. Pacific Time/ 1 p.m. Eastern Time/ 6 p.m. in London
click here for details & free registration

The Internet for Retailers: "The Arab Spring of the Commercial World"

There's a major sea change affecting retailing right now, whether we're ready for it or not.

Sea changes have hit retailing in the past, of course.

• Department stores once ruled retailing. Ah, but they didn't die. Instead, they went horizontal. They became known as Wal-Mart, Costco, Target, etc.
• Then "big box" stores, like Circuit City, Borders, Toys R Us, etcetera, stole the thunder from malls.
• In fact, there was a time when malls essentially had no vacancies. Now, they are being "re-purposed". Retirement homes, anyone? Charter schools?

But the current upheaval affecting retailing may be the most game-changing of all: the Internet. It continues to dramatically change the retail industry, at an increasingly fast pace. It's the Arab Spring of the commercial world! 

All those things that specialty retailers prided themselves on delivering in-store, in-person, are now available on-demand, 24/7 to the shopper via their smartphones.

No matter which consumer segment you target, they are increasingly web-reliant. They depend on the web to give them product information, shopping recommendations, price comparisons, store reviews, and more.

For hints of the future, watch the Millennial Generation. Yes, the "Digital Natives". The ones we know only from the tops of their heads, as they are busily texting.

That group now is larger and more influential than the storied Baby Boom generation that drove so many adjustments during the last 50 years. Watch every shopping decision they make: how, where, when and what they shop.

But don't stop there. All other consumer segments are being affected by the sea change as well. Grandmas buying off tablets? Baby Boomers checking prices from INSIDE a store on their smart phone?!

In fact, the fastest growing group of Facebook users is now the over-50 age group. So much so, that the teenagers are deciding to move away from Facebook. Where will they land?

So, which will it be for you?
There are three kinds of retailers:

1. Those who make things happen.
2. Those who watch things happen.
3. And those who say, "Uhh, what happened?!?"

Don't let the internet - the Arab Spring of the commercial world - turn you into retailer type #3.

Greatest Growth Opportunity in Retailing? Better Owners!

Winston Churchill once said, "Some are born great. Others achieve greatness. And some have greatness thrust upon them." And so it is with business ownership. Some are born to it; others achieve it; still others have it thrust upon them.

Whatever their route to retail ownership, few recognize or appreciate that being the owner is its own job, separate and distinct from any other job in retailing. Whether the "Owner" is one person (perhaps the founder); several people (perhaps family members, business partners, even investors); or, as in the case of a corporation, represented by the Board of Directors, the job of the "Owner" is the most under-performed and overlooked job in retailing!

Indeed, The Retail Owners Institute believes that failures in retail are traceable not to weak management, nor to weak CEOs. Instead, most retail failures can be traced directly to under-performing ownership.

Meeting the Owner-Only Responsibilities
The ROI has identified that every retail business - no matter its size - has three levels of management issues, or responsibilities, each with its own unique demands. The Institute has defined these three levels: Owner level; President level; Management level.

Too often, these three levels of issues are entangled and overlapping. And, just as often, the word "owner" is used interchangeably with "boss" or "president" or "manager". This confusion can no longer be tolerated. Even when one person must fulfill all responsibilities, it is important that the differing roles and obligations be separated.

The #1 responsibility of the Owner? Survival of the business. That in turn demands consensus at the Owner level on this fundamental question: What constitutes success? Without that consensus, a business will flounder. Only the Owner(s) can answer that question.

Success in retail does not depend on "location, location, location." Nor does selling the latest "must-have" product assure success. Today, the true retail success stories will be written by those companies whose Owners are effectively performing their actual job; doing those things that only the Owner can do.

Tale of the Tape: What Retail Benchmarks Show

The Retail Owners Institute(R) has updated the charts and graphs of performance benchmarks for 52 retail segments, and recently posted them on The ROI site. These are the ratios prepared for and used by virtually all lending personnel. We show charts and graphs of five year trends for 6 key ratios for retailers to monitor (Turnover, Gross Margin, Pre-Tax Profit, Debt-to-Worth Ratio, Current Ratio, Return on Assets).

Most users of the Store Benchmark numbers displayed at The ROI are focused on their specific retail segment. Depends on what kind of retail business they have: gift shop? apparel store? hardware store? pet store? However, we have spent some time reviewing all of the segments. What did we discover? Generally, they look awful!

While there are improvements vs LY (going against "soft numbers"), few retail segments are back to even with 2008 performance levels. That Recession, you remember.

Gross Margin and Pre-Tax Profit Trends
After topline sales, what do most retailers pay most attention to? You got it! Gross Margin, and "the bottom line". And sure enough, over half of the 52 segments showed increases in Gross Margins vs 2009; same with Pre-Tax Profit.

Of course, we are going against "soft numbers", since 2009 was so grim.... Comparing 2010 to 2008, a somewhat different picture emerges:

Margins up: for a whopping 2/3rds of the reported segments (35 out of 52), 2010 GM% exceeded 2008 Gross Margins

Profits down: On the other hand, for 34 of the 52 retail segments, Pre-Tax Profits are still below 2008 levels.

The Lenders & the Vendors
Meanwhile, what do the bankers watch? They keep an eagle eye on your Debt-to-Worth ratio. (Their focus is on getting any and all loans repaid.) There are some promising trends here to report!

2010 vs 2009, only 15 retail segments showed increases in the Debt-to-Worth ratio. And that's a good trend! It shows these businesses are getting financially stronger.

And 20 retail segments showed improvements in the Debt-to-Worth ratio vs 2008. (Might be something to that "survival of the fittest" idea. The retailers still here are in fact stronger.)

What ratio do the credit departments at your vendors pay most attention to? The current ratio. It measures your ability to pay your bills on time. The benchmarks on that measure show how tough the retail environment continues to be.

Comparing 2010 to either 2009 or 2008, a scant 23 retail segments (only 44%) showed improvements in the Current Ratio. In fact, as you look at the benchmark trends, note for yourself how many segments have Current Ratios below 2.0 (a C grade).

Inventory Turnover
What really drives these ratios? Inventory turnover. Here again, the overall indicators are not promising. Twenty-six of the retail segments showed declines in turnover. That means more cash is tied up in (old) inventory. And only 17 segments showed increases in turns for 2010 vs 2008.

As Michael Gould Bloomingdale's Chairman noted, "No retailer ever filed bankruptcy because their turns were too high!"

What's the "bottom line" of all this?
Opportunity abounds! Those retailers who can better manage these key metrics of retail financial strength can quickly separate themselves from the more mediocre performers.

"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!

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.

Hasn't Every Mall Lost its "Real" Anchor?

Retail is a mirror of society. And "society" is moving away from malls.

Consider the important social networking role that stores - and malls in particular - have played since their inception. They were the place that people would go to see and be seen, to meet with friends and neighbors; they were the new, clean, comfortable "Main Street", the new "Town Centre".

And many retailers and malls especially served this "social networking" role for teenagers, or for senior citizens walking their laps in a safe, climate-controlled environment. Pedestrian traffic was assured.

So, what's different today? Digital social networks. Malls as social networks have been supplanted. Now we have Facebook. Twitter. Texting. Even email for those a bit older. Socializing has not gone away, but it has moved away from malls.

In fact, when you are in a mall or shopping district, have you noticed which stores actually are busy? Yep. The Apple Store! Then, the cell phone stores. Are we suggesting that all retailers must sell smart phones in order to succeed? Not at all. But clearly, shoppers still seek social networks, and the tools that enable them to accomplish that.

We believe that every mall has a new kind of competitor; it's no longer the development at the next interchange, but the new emerging forms of social networking that engage the time and attention of customers.

Retailing IS a mirror of society. Isn't it time to bring more of a social networking experience into your stores? Malls aren't going to do it for you.

Retailers: Time to Focus on Your Most Profitable Customer

Most retailers are facing difficult choices in 2009: where and how to cut back. Many have no choice but to cut expenses, cut inventory, go out of categories, or even close stores.

The challenge: how best to choose? What to cut, and what to keep?

We believe these tough owner choices can be guided by knowing just who is your best - that is, your most profitable - customer. This economic climate offers a great opportunity for you to do to your customers what they have done to you for years...shop around for them! Be very selective. You must lose the ones that are not good for you.

Remember, the retailers who will continue to survive in 2009 and beyond are those not with the most profitable locations or merchandise, but the most profitable customers.

You may be surprised at how quickly you can get the facts for yourself. And it may cost you nothing extra! Indeed, with today's POS systems, you may already have the data available to you. What better time to turn that data into strategic management information you actually can use to help your business survive?!