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.
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.
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"?
What's in Store for Retailers in 2010?
Now, we have good news and we have bad news. (As though you haven't had enough of the latter.) Oh, and then we have some more good news.
First, the really good news. Although we have been perched out on this limb for months, we still believe, overall, sales between Thanksgiving and December 31 this year will recoup about 50% of last year's decline. In other words, if you were down 8% during that period last year, we expect you will be up about 4% this year. But of course, you will have to aggressively go get it!
Now the not-so-good news. We're projecting that the first three to six months of 2010, overall retail sales will be flat. Don't look for gains after this month. Not only is the economy expected to be a drag, but deflation looms. You probably will sell as many or even more units in early 2010 as last year, but we believe volume will be flat.
Ahh, but back to the really good news. Since your operating expenses and inventories are now down (they've had to be), we believe there can be improved margins even with flat sales in early 2010. You will have to be a real merchant to capture these margins, but they are available.
Remember, anybody selling merchandise is a retailer. It's the merchants who lead the way! And for the merchants, "flat is the new up"!
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