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Business Management

by Patricia M. Johnson and Richard F. Outcalt

The economy may well get worse before it gets better.

Retailing is always a mirror on society. As society changes, retailers must forever adjust their stores, prices, selection and services. Indeed, their very existence depends on the wishes (or disdain) of customers. Right now, society has flu symptoms. During 1999 these symptoms could respond to preventive measures or develop into pneumonia. In any event, wise retailers are well advised to increase their vitamin C intake. Consider the following information provided by Associated Press economics writer Martin Crutsinger: Employing unusually blunt language for an agency that normally searches for a silver lining to any economic cloud, the International Monetary Fund in the fourth quarter of 1989 observed: • Worldwide economic turmoil has cost millions of jobs and more than $600 billion in output-the equivalent of a country the size of Canada shutting down for a year. • The agency also warned that global recession cannot be ruled out, especially if the U.S. economy weakens more than expected. • International economic and financial conditions have deteriorated considerably in recent months. Spreading financial turmoil, which began 14 months ago in Asia, leveled the Russian economy more recently and now is threatening Latin American countries. • The IMF warned that chances of any significant improvement in 1999 also have diminished and the risks of a deeper, wider and more prolonged downturn have escalated. Meanwhile, since mid-year 1998 the government has announced unemployment increases, consumer confidence declined for three consecutive months, inventories build, retail sales flatten. With political uncertainty at home and international economic turbulence, it is imperative to heed the early warning signs. A parallel, but far less publicized threat to the economy (and therefore to retailers) is the Y2K disruption. With an abysmal lack of leadership, it has become impossible for all computer systems to become year-2000 compliant in the months remaining. The pervasiveness of computers means that many aspects of our daily lives-banks, telephones, airlines, credit card billings, government agencies-may be frustratingly disrupted by the Y2K bug. In turn, that may accelerate a credit crunch, as lenders start to require businesses to prove their readiness for 1-1-00. We look for this to be a further dampening of the economy well before the millennium. If the world's economy doesn't bring on a severe credit crunch, the Y2K might very well. (For more about "The Y2K Problem and You," see On-line.) As always, retailers will be among the first to feel the impact of an economic slowdown. Yes, we are suggesting that virtually all retailers will decline in 1999. But how far and to what stage will be determined on an individual basis. A Prescription This definitely is the time to get a flu shot for your business! Even if your diagnosis indicates no symptoms now, you must take steps to prevent any from occurring and from worsening into pneumonia. Where should you begin to make these adjustments in your business? With this one overriding goal: Pick up the pace in your business. Whether it is faster turns on inventory, shortened delivery times, quicker approaches to customers, or even more upbeat music in the store, your goal is to become less of an aircraft carrier and more of a PT boat! Here are some ideas to get you started: 1. Crank Up the Pace • This is not time for the hunker down mentality. Let your competitors be sluggish and dismal. Make yours the fun place to shop! • Change displays more often. Move the merchandise around. • Compare sales per square foot, not by store but by different departments within the store. • Show enthusiasm and energy. (Walk faster!) • Greet customers sooner. Check back with them more frequently. • Spend more time on the floor selling, not strolling. 2. Brighten and Invigorate the Outlook • Increase lighting! Have more light overall. Use spots to showcase the merchandise you most need or want to sell. • Spiff up, spruce up, clean up. No fingerprints on windows, doors, cash wrap counters, etc. Freshen the paint, wax the floors (reflects more light). • Update the dress code for employees. Give them a new, fresher look too! • Music (remember, for customers, not staff). Upbeat. Energy. 3. Inventory • Raise inventory turns by at least 10 percent (i.e., if at three turns now, raise to 3.3). • Figure inventory turnover in weeks, not months. • Streamline assortments. As the average consumer's buying power declines, tastes turn to value, quality and mainstream styling. • Tighten delivery schedules closer to the selling season. • Be nimble, quick, first in line to take advantage of deals. Have ample open-to-buy funds, and seize opportunities to buy merchandise at reduced prices. (Vendors are trying to turn their inventories into cash, too!) • Take quicker markdowns. • Make sure all orders have cancellation dates, and that vendors comply with them. • Eradicate stockroom delays. Ask the folks who work there what should change. They'll know! 4. Expenses • Find the "creepers!" It's not one big cost increase that's the problem, but the sum of all the little ones. Telephones, supplies, advertising, etc. • Examine freight costs. Are you paying for unnecessary premium deliveries? Can rush shipments be reduced by better planning? • Don't ever go for sales volume for volume's sake. Actual sales gains may be rare and they also create bills. • Go for gross margin dollars, not percentage. 5. Cash Flow • In crunch time, if you must choose a goal of profit or cash, always forego profits, not cash. (Remember, you eat on cash flow, and pay taxes on profits!) • Manage your inventory with an eye to cash flow. When placing large orders, request small shipments, and ask for dating. • Accelerate debt repayments; resist the low-interest-rate temptation. • Sell every unnecessary piece of equipment or fixture. Prognosis for the Economy It will get better, but first it will get worse. For the past seven years, retailers have succeeded or failed in a sound economy. Now, retailers will continue to succeed or fail, but in a turbulent, uncertain economy. We expect the Federal Reserve will cut interest rates several more times before spring, thus giving the U.S. stock market a euphoric all's-well-again feeling. It won't be. The bear market will be with us for a while. The soft global economy and the Y2K problem will disrupt economic growth. We believe this new period will last one to two years. Remember, retailing is a mirror on society. There will be a recovery, and then the economy's state of health won't be such a concern. Meanwhile, monitor the status of your business using the following chart and apply the appropriate remedies shown with dispatch. RX Explanation Date Last Reviewed • Raise turns Streamline inventories; it's better to miss sales than have excess inventory.   • Eliminate debt Ignore the tempting low interest rates; having no debt is the best post-recession preparation.   • Buy low/negotiate lower World glut is a reality; deflation may offer opportunities to those with cash.   • Have fewer, but better people in management As unemployment rises, raise the capabilities of managers, or replace them.   • Bonus buyers on GMROI; Bonus sellers on GM In a downturn, productivity takes added urgency; compensation must always be in line with goals.   • Test quarterly, on a scale of 1 to 5: "Is this as good a place to shop as it is to work?" The '90s retail mantra, "This is a great place to work!" may need to be subordinated (in spite of screams and anguish).   • Never leave a spot showing Amateurs cut costs by less advertising and less maintenance. Pros refocus on their most profitable customers.   • Avoid the Law of Too's Too little Too late Too bad The good news is: retailers are forever optimists. The bad news is: retailers are forever optimists..   • Obey the First Law of Holes When you're in one, quit digging!   Patricia M. Johnson of Outcalt & Johnson: Retail Strategists, LLC provide services to retail owners/presidents throughout North America. They are highly acclaimed speakers, writers and consultants addressing issues of changes in retailing. For a complimentary answer to your questions, please see their Web site at www.RetailOwner.com.