For most retailers that sell non-essential goods, this Christmas sales season is looking pretty bleak. The term “black Friday” was coined to describe the day of the year that retailers went into the black, meaning that they turned profitable. This day is normally considered the day after Thanksgiving. What has been scary about 2008 so far is that sales have been down so far up to this point in the year, that mom and pop retailers are nearly out of cash and have tapped out their credit lines.
Retailing is a tough business when you are a small business and have to compete with the likes of Wal-Mart, Target, Home Depot, Lowes, Best Buy and all the other large national discount chains. Businesses that have nearly disappeared include the small hardware store, meat markets, and small neighborhood grocery stores. The list goes on.
To compete, the small boutique retailer has to have a niche, or a geographical area where the “big boys” aren’t competing. Small business retailers must find ways to compete or they will cease to exist.
When you mix the pressure from the large national retailers and the slowdown in the economy, some business owners are wondering if they will make it through this holiday season.
The picture isn’t pretty. What happens after the holiday season is over? Retailers hit the two worst months in the year, January and February. So if they can’t replenish their cash position during the last quarter of the year, they begin the new year in a more cash stressed position than before and go into the worst quarter with no cash surplus.
Small business retailers are currently on the bottom of the list of businesses that banks are lending to right now. Below them on the hierarchy are restaurants and entertainment businesses.
So if a small business retailer has stretched its cash and inventory as tightly as it can get right now, has a poor last quarter and goes into the first quarter of 2009 with no cash or credit, they won’t be able to replenish inventory. No inventory means lost sales and revenues decline even further.
The only strategy that makes sense to survive this next 6 months is to plan for the worst. Keep inventory levels as low as possible without loosing too many sales. Beat vendors over the head for the best price possible, and negotiate 60 day terms or 30%/30%/30% payment terms. Try to negotiate a reduction in rent. Mall rents are the highest for retailers because they claim they can deliver traffic. Right now, malls aren’t able to deliver the buying public, so play hard ball with them.
Lastly, know what your competitors are doing. Learn from their successes and failures. Experts are saying that retailers should focus on selling items under $25.00 this Christmas season. The lower priced merchandise should produce a higher gross margin.
You may contact Sam directly at: email@example.com
or follow him on Twitter: SMBfinance
EXTRA: If you have questions for Sam regarding business financing, the credit market, and similar issues, please send an e-mail. Your questions will be recorded and Sam will answer the best ones in his Ask the Expert podcast show.