The following was written in 2009 as I came head to head with the recession. Although this occurred in the past it might be noteworthy to review it like I have and perhaps learn a lesson or two. One thing I have learned is that after two years I still have to cling to most of these ideas. Read closely.
You haven’t heard from me since November (2008) and all I can say is that I have been using all my knowledge to survive what has definitely turned into one of our most challenging times remembered.
This December (2008) sales were down 48%. As I have written in previous chapters I have been preparing for a slowdown but I can tell you I never expected it to be this severe. However the good news is this…sales were down 48% but gross profit was down 30%. These are the factors that went into controlling this loss.
1-It was Christmas and I was aware that whoever walked into the store was going to purchase. Reaction to the recession, although strong was definitely not severe enough to hold back some consumers. I controlled myself from giving deep discounts.
2-The inventory I prepared was merchandise that was both low priced and high profit margined.
3-I prepared inventory that I knew I could sell for February if it would not sell for Christmas-this was one of the best moves I made!
4-I reviewed my past Christmas buyers and made sure to send them an extra dose of advertising.
5-I had been sure to explain to the extra help I hired that I would guarantee their jobs till December 24. When the date came there were no hard feelings.
January came in and things were still almost at dismal levels but I decided to offer what everyone was needing….cash. Yes, I offered cash for used merchandise that I could meltdown and sell for scrap. Along with repairs, this approach helped maintain a positive cash flow and small profit. I also concentrated on my internet sales. Unfortunately things have been quite slow overseas but although it is a small amount it is welcomed income all the same.
Everyone has been waiting for the Bush administration to move out and bring in Obama and his hopes for “Change”. Although I have welcomed the new administration with open arms I’m quite aware of the political rhetoric that follows and reminded myself that none of these people are business owners. Most politicians are lawyers and politicians. How many can we say have worked to maintain a business? Hope for the best but expect the worst!
Take a close look at this economy and the “recovery” will surely come, but don’t expect for business to be at the level it was four years ago and don’t expect business to bounce back rapidly. In fact I dare to say that things are going to get worse before they get better. Look at all the events that are taking place. Bailouts that will ultimately be paid by our children, increasing unemployment, tight credit (a blessing in the long run). Freely available credit has artificially been maintaining high prices. The only way this economy is going to bounce back is when prices start meeting consumer income. Face it folks, a cup of coffee just isn’t worth four bucks! But of course when you can put it on a credit card, you will pay for it. When that credit isn’t available you won’t buy and the price will come down! With this in mind this is the first suggestion I have for you…..
1-Negotiate your lease! Review your books and play with your budgets. Look at the possibility of revenues dropping by as much as 40%. Start cutting expenses and start by renegotiating your lease with your landlord. Get at least a six month reduction. Look at the number of hours that large companies are cutting their employees. Of course what large companies need to see is top management take a big cut as well. Let’s see if they really are “in this together”.
2-Call your vendors and get them to cut prices. Explain that your profit margin is dropping drastically and you need to be “competitive”. Perhaps they will extend “terms” but the truth of the matter is that “credit” is what you have to be running away from at this moment. You have to turn your business into a “cash based business” if you are to survive this episode.
Look at the businesses that have failed in the past six months. All of them have one thing in common, they were not able to secure credit to sustain their operations. Sorry but the truth is that “credit” is not the way to sustain a business. Business credit should be “short term” credit used in order to purchase merchandise and be paid off within a short time period. The moment you start using your credit lines to sustain business operations you are doomed!
Think you can figure a way out of this? Dream on. If you don’t get “small” and highly competitive you’re going to be extinct within the next four to six months. Feeling sorry about getting rid of your employees? Being the boss is tough, but the truth of the matter is that it’s your business and you are the one that has taken all the risks. Want to keep an employee? They better be producing revenues for you and not standing around to be someone you can talk your woes to.
Hard times, hard decisions.
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