I don’t want to hit the panic button, but more and more people are talking about the potential for recession. The subprime mortgage issue has rocked the housing market, significantly increasing mortgage defaults and causing sales to decline. The Fed expected 100,000 new jobs in August, only to find a decline of 4,000 jobs.
Add all of this up and analysts are already speculating that the holiday season may not be so jolly. It’s time to batten down the hatches and get ready to weather the storm. No matter how big or small, chances are there will be one. Being prepared will make it easier to recover. Here are some ways to get ready:
- Get set for an October sale. October is the month where retailers typically mark down a lot of merchandise in order to make room for the influx of holiday items. Make sure you promote the sale.
- Forgo bringing in that new line of merchandise. Do you really need to spend the cash right now to fund a new product line? Is bringing the new line in going to dramatically enhance sales? Chances are that it won’t (unless of course it’s the hottest line out there and it has so much buzz that your shelves will be empty a couple days after it arrives).
- Cut your inventory. Operate a little leaner. Can you trim 10 percent to 15 percent of your inventory costs by carrying less of each item? If so, then do it. Not only does it mean you’ll have more working capital for this slower time period, but it means you’ll have important cash reserves should the storm last longer than expected.
- Shave labor hours. Labor is one of the biggest costs for any retail business. Ultimately, you want to get your payroll costs to be less than 15 percent of sales and ideally around 12 percent. Can you do without that person who works a four-hour shift three days a week and still deliver excellent customer service? If so, make the cut. It’s more cash you can use for working capital or to save for later.
- Trim marketing expenses. Some argue that when times are tough, you need to market your business more. But in fact, if consumers are in a hunker-down mode, no amount of marketing is going to get them to react. Market only when you need to: your October sale and the holiday time period. Pull an ad here or there to trim the costs. Test it. If you can do it and your business doesn’t change, the marketing isn’t working anyway.
Get going. The storm’s a brewing. Even if it turns out to be a smaller storm than expected, you’ll be the big winner for being completely prepared.