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Preparing For A Recession

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If the world's economy doesn't bring on a credit crunch, the Y2K might. It's time for retailers to check the health of their business.

Retailing is always "A mirror of society." As society changes, retailers must forever adjust ­ their stores, prices, selection, service. Indeed, their very existence depends on the wishes (or disdain) of customers.

Well, during the fourth quarter, "society" had 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 big time!

If the world's economy doesn't bring on a severe credit crunch, the Y2K might very well.

As always, retailers will be among the first to feel the impact of any 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 (see our to-do's later in this article).


The Diagnosis
Look at the table called "Retailers in Decline: Three Stages" on page 40. Use this table to evaluate the status of your business. Listed in the left-hand column of this table are eight categories of "vital signs" to monitor to know the state of health of any retail business. The headings across the top are the stages of decline; Stage One is the least severe.

You can use this Stages of Decline indicator to quickly diagnose the health status of your business. For each vital sign category, circle the "answer" or description that best describes your business. (Don't be too harsh!) Now, look over the table. How many Stage One's did you circle? Stage Two's? Any Stage Three's?

Most retail businesses are in some aspect of Stage One at any given time. The savvy ones recognize it, and make the appropriate adjustments to get themselves out! The sooner they recognize the condition they are in, the more effective ­ and the less drastic ­ their adjustments will need to be.

Our Prescription
This definitely is the time to get a "flu shot" for your business! Even if your diagnosis indicates no Stage Two or Stage Three symptoms, you must take steps to prevent any flu symptoms ­ any Stage One symptoms ­ 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, 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.


Crank up the pace
This is no 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.
  • Have enthusiasm. Energy. (Walk faster!)
  • Greet customers sooner. Check back with them more frequently.
  • Spend more time on the floor...selling, not strolling.
  • Brighten and Invigorate the Outlook
  • Increase lighting! Have more light overall. Use spots to showcase the merchandise you most need/want to sell through.
  • Spiff up; spruce up; clean up. No fingerprints on windows, doors, cash wrap counters, etc., 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.
  • Raise inventory turns at least 10% (i.e., if at 3 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 that all orders have cancellation dates, and that the vendors comply with them.
  • Eradicate stockroom delays. Ask the folks who work there what should change. They'll know!
  • Find the "creepers"! It's not one big cost increase that's the problem, but the sum of all the little ones. Phones, 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. Sales gains may be rare and they also create bills.
  • Go for gross margin dollars, not percentage.
  • 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.

Our Prognosis for the Economy
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 that the Federal Reserve will cut interest rates several more times this winter, thus giving the U.S. stock market a euphoric "All's well again!" It won't be. The Bear Market will be with us for a while.

The soft global economy and the Y2K crisis will disrupt economic growth. We believe that this new period will last one to two years.

Remember, retailing is a mirror of society. There will be a recovery, and then the economy's state of health won't be such a concern. Meanwhile, use the Stages of Decline indicator every month or two to monitor the status of your home furnishings business, and then apply the appropriate remedies with dispatch.

 


REVIEW THIS CHART FREQUENTLY

 


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 have a spot out (displays) or a spot in (the bathrooms). Amateurs cut costs by less advertising and less maintenance. Pro's 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!


RETAILERS IN DECLINE: THREE STAGES

   STAGE 1  STAGE 2 STAGE 3
Cash Going Going Gone
Employees Questioning management. Even the best people are not getting bonuses. Brain drain (those still here cannot get jobs elsewhere).
Advertising Cut back to save expenses. Totally vendor driven. Highly promotional to raise cash.
Appearance of stores Unkempt; maintenance cut to save expenses. Outdated; public areas shopworn and neglected. Years behind; chronic neglect; lack of concern.
Merchandising High proportion of out of date merchandise. Merchandising to raise cash; no customer focus. Purely "scramble mode."
Inventory Out of balance; overbought.  Missing basic stock: styles, sizes. "Death Spiral" begins. In the grip of the "Death Spiral" : limited to whichever vendors will still ship.
Vendor Relationships Losing cash discounts. Losing "most desirable" vendors; keeping "second tier". Factors/ flooring increase influence. Totall dependent on marginal vendors. Factors/flooring in control.
Financial Operating losses. Operating losses; High Debt/Worth ratio. Operating losses; High Debt/Worth ratio; Cash Crisis.


Patricia M. Johnson and Richard F. Outcalt are principals of Outcalt & Johnson: Retail Strategists, LLC, a national consulting team for the retail industry. They are recognized experts on retail trends and changes, publishing their articles in more than 40 trade magazines and journals each year. Questions or comments can be directed to them care of FURNITURE WORLD at editorial@furninfo.com.

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Furniture World is the oldest, continuously published trade publication in the United States. It is published for the benefit of furniture retail executives. Print circulation of 20,000 is directed primarily to furniture retailers in the US and Canada.  In 1970, the magazine established and endowed the Bernice Bienenstock Furniture Library (www.furniturelibrary.com) in High Point, NC, now a public foundation containing more than 5,000 books on furniture and design dating from 1620. For more information contact editor@furninfo.com.