So, That Question Again

We are asked frequently - and again last week it occurred - “Well, Pat & Dick, what’s your view on the economy for retailers?”

We began by recounting the challenges: 

“Well, this is the New Normal. That is, modest population growth, many fewer people in the Generation X valley between the Baby Boomers and the Millennials, and the sense that worldwide events may at any moment substantially impair our economy." 

Then, we also noted the positive indicators:

• consumer confidence continues to rise
• last week the stock market hit an all time record high
• and of the 54 retail segments we follow, although some are suffering, most are doing quite well. (see Monthly Sales comps on The ROI site - compare your sales trends to your segment).

"Actually, It's Just Like the Weather"

But, here's the real key: in every retail sector, some retailers are declining, and others are doing quite well indeed.



What separates those succeeding retailers from all the others?

• Those who are thriving tend to be focused on the “controllable variables” - managing inventory, expenses, people issues, cash flow.
• Of course, they're always doing what they can to improve sales. But that's not as controllable!
• And, they consciously choose to not be drawn into the distractions of the 24/7 bad news cycle, even though those around them tend to be.

In other words, the economy, like the weather, does have an impact on retailers. But, like the weather, the economy is beyond their control.



The best one can do is:

• pay attention
• stay nimble
• adapt
• and control the controllables!

That's why it seems to us the answer to the question - “Well, Pat & Dick, what do you think of the economy for retailers?” - is this:

Three things: Execution. Execution. Execution.

That Other "Obesity Epidemic": 80% of Retailers Are Over-Inventoried Some or All of the Time!

Retailing is different from all other industries. Why? Because inventory is the only engine of profitability. Managing the inventory is truly the #1 responsibility of top management in retail.

And yet, about 80% of all retail operations are over-inventoried or out of balance some or ALL of the time!

• As such, these retailers become short or out of cash. 
• Or they are forced to cut margins drastically to get rid of non-selling merchandise. (Ahh, which is worse? Out of cash or out of profit??)

The reasons for this rather sad situation are many, but two major issues stand out.

• The sellers of merchandise, the vendors, are very well trained at their job - selling! And meeting sales quotas.
• Meanwhile, the retail buyers of the merchandise, who may be excellent selectors of product, are not so well schooled at the management part of their job: setting and meeting buying budgets.  

(The reps usually know that budgeting inventory purchases is simply a four-part formula, called "Open-to-Buy". But do you think they want the buyers - their customers - to use a budgeting system? Of course not! "Are you kidding?! We don't want them that smart!")

But are the buyers really the weak link? Not usually. 

Instead, the problem is traceable to senior managers who are under-trained – or under-committed – to their #1 responsibility: managing and controlling that inventory!!!

"Fitness Center" for Out-of-Shape Inventories

Those days now can be over! With some humble delight, we love that thousands of retailers from around the world are benefiting from this (cheap!) online resource from The Retail Owners Institute®: the Open-to-Buy Center. 

• Those who use the Open-to-Buy Center learn the basics of Open-to-Buy.
• Plus, they generate their own buying plans, all online, with the Open-to-Buy Calculator . Easy and fast for retailers. 

Click here. Go to the Open-to-Buy Center  See how this "fitness center" for out-of-shape retail inventories is helping to combat that other "obesity epidemic".

Knowledge is power! Some day soon, the playing field may be level!

"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.

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.

Retailing is Not Dead; It's Being Re-Invented!

"Four days, for savings, for you!"

Five-store Kitchen Kaboodle in Portland, Oregon has been a full-line, full-price kitchen and furniture retailer for 30 years. It's become a prominent and respected private chain.

But customers increasingly have been buying only the merchandise that's been discounted. And only at the times that suit them the best. Of course, that's the trend everywhere. So what can retailers do?

Effective March 6, Kitchen Kaboodle boldly switched to a 4-day week with everything off price!

Here's part of Kitchen Kaboodle's announcement of their new business model of "Four days, for savings, for you!"

"Shocking? Not really. As a locally-owned business, as your friends and neighbors, we feel a special need to give you what you want, these days more than ever. And who doesn't want the same great Kitchen Kaboodle stuff, at new lower prices? You don't want cheap steak, you want steak, cheap. To get it, just visit us Thursday through Sunday, or stop by anytime on the web. See you Thursday morning!"

By going to a 4-day week – closing all Mondays, Tuesdays and Wednesdays – Kitchen Kaboodle is cutting expenses by over 30%. By passing those savings on to customers, all prices on 100% of the merchandise are discounted all Thursdays, Fridays, Saturdays and Sundays. And none of their five stores are closing!

As Co-Owner John Whisler says, "We're offering our best merchandise, at the best prices with our best staff on the best days for shopping, all for our best customers. That's retailing for this 'New Normal.'"

See the Kitchen Kaboodle website for more info about their reinvention. For further details, call John Whisler at 503.241.4040.

Full disclosure: Outcalt & Johnson: Retail Strategists, LLC, the Co-Founders of The Retail Owners Institute, developed this reinvention concept for and with the Owners of Kitchen Kaboodle.

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!