Many retailers rely on the months of October, November, and December (often called OND in the industry) to generate nearly 50 percent of their annual sales. It is the time many of them pass break even and generate enough profits to get them through the next nine months.
The past two holiday seasons have been pretty hard on small retailers. They faced a balancing act of keeping just the right amount of inventory in stock without having too much at the end of they year. January and February tend to be close out months and are often negative profit months.
Those small retailers that are fortunate enough to have a bank line of credit have not had extra cash during the year to draw down the lines, so for many of them there is little or no available source of loan money to help them. Vendors are having difficult times too and although they would like to offer terms to their retail customers, they are not in much better shape than their customers.
Many small business retailers have foregone much of their own income this year and part of last, so they personally have been running on fumes too.
Last season, my partner and I coached a 20-year-old business that was in the position I describe above. We helped them institute a lean inventory system. We taught one of the owners how to use a 13 week cash flow forecast. Every Sunday night he updated his forecast with the week’s receipts (we started our CF forecast on Monday of each week). We had online conference calls with the two owners each Monday morning (30 minutes before the stores opened) and discussed our sales forecasts for several weeks out and what vendors we were going to pay that week. The system worked beautifully. The stores still had a lackluster year compared to prior years, but we managed to get to December 31, 2008 with all vendors paid current and 3 months of cash in the bank.
During December we started negotiating with the mall to get a concession on rent, which was grossly out of proportion with gross revenues. Although it was an arduous process we were able to get rent for the company’s two stores reduced from 40 percent of ’08 revenues to 14 percent of projected ’09 levels. This reduced rent in each store by nearly $4,500 a month. This gave the merchant additional necessary breathing room.
During 2009, my client has continued his cash flow forecasting religiously, though they don’t need my partner or me to be on the conference call on Monday morning any longer. August and September tend to be slow months for this merchant but during the last year they have put up an online e-commerce site and are driving business there using Twitter. The e-commerce site draws from the store’s inventory but won’t have to pay mall rent on the sales, so they merchant will hopefully turn his inventory quicker without the overhead of being in a typical suburban mall. Still, with all these positive changes my client has made, this year will be critical for them. They need to generate significantly higher sales this season than last so they can pay down some of their long-term debt. Our strategy has been to take it one week at a time and so far that has worked. If consumers spend more of their discretionary income this season than last in my client’s stores, they will go into 2010 pretty strong compared to their competitors and will be poised to do well in 2010.
Most importantly, my client has learned the importance of keeping a lean inventory, managing payables and keeping trade credit open, keeping fixed costs as low as possible, and generally implementing “best of class” business practices.
I am keeping my fingers crossed for retailers this year and hope they institute some of the processes I have described above. “Lean and mean” should be the mantra for the rest of the year for small retailers.