For those of you who were lucky enough to make it to ABA Winter Institute in Salt Lake this year, much of the discussion focused on where we are heading as an industry, and how we will survive long enough to get there.
No one will argue that the recent economic news has ranged from unpredictable to downright alarming, with booksellers and publishers alike trying very hard to find some footing amidst all the hyperbole and chaos.
It seems like an avalanche: publishers cutting jobs, the Kindle 2 arriving, unemployment rising, home values plummeting, and many communities experiencing the loss of local jobs and businesses. Without some good advice, it would be very easy to panic.
And good advice is exactly what the ABA delivered in the form of a substantial panel that held this important message:
Although we are facing a difficult market environment, Tough Times are any times when external forces negatively impact your business.
It could be a construction project, a natural disaster, or even a leaky roof. If your business is healthy going in, you can manage your business for survival with some good planning, hands-on oversight, and honest proactive communication.
The materials for the panel are available online (ABA membership req.) but this message is so sensible and timely that I want to highlight some key points here.
LEADERSHIP AND PLANNING
In any situation where you are experiencing a shortfall of revenue while expenses remain steady, you are going to need cash, either from external sources or internal sources.
There are numerous ways to ensure you have enough liquidity – that you have enough cash to pay your bills and make sure you have a steady stream of inventory – during a sales decline. All of them require leadership and planning.
Leadership begins with acknowledging that the times are tough and that these tough times will affect business.
Admitting there is a problem is half the battle…the rest is planning and reacting quickly. Don’t keep it a secret. Let your stakeholders — staff, landlord, creditors — know you are facing tough times but that you have a plan. Let these stakeholders make suggestions and participate in finding the solutions.
You should, in good times and bad, be creating and monitoring budgets for sales and expenses, all with an eye toward monitoring your cash flow.
You need to know, on a month-to-month basis, how much cash you have and how much you need to remain viable.
MAKING UP THE DIFFERENCE – External Sources of Cash
LINES OF CREDIT/LOANS
- Retailers typically operate at a loss during one or more of the first three quarters of the year. A line of credit helps sustain your operations during those months. Most lines of credit will require you to not draw on the account for two consecutive months each year. A line of credit can be an invaluable tool to help you sustain your operations when times get tough. However, they are NOT designed to make up a shortfall, only to manage cash flow.
- Another external source of liquidity is your suppliers. If you have a well established and good payment record and are just facing a short term cash flow problem, it can be possible to work out extended payment terms.
MUNICIPAL DEVELOPMENT PROGRAMS
- Depending on where you live, there might be economic developmental programs which assist in funding small businesses.
RETURNS ON INVENTORY (see below)
OTHER LOANS/SOURCES OF CASH
MAKING UP THE DIFFERENCE -Internal Sources of Cash
- When sales turn down, inventory will need to be adjusted to reflect the lower sales volume.
- Even in good times, effective inventory management can be the difference between profitable and unprofitable stores.
- Look on your shelves. What do you see? Imagine each book as a $14 bill.
Steps to manage inventory
- Pare inventory intelligently
- Reduce cost of purchases
- Bring in higher margin merchandise
- Increase purchasing discounts
- Reduce freight costs
- Take cash discounts
- Reduce inventory shrink
- An economic downturn is as hard (or harder) on landlords as it is on business owners. The last thing your landlord wants now is vacant space, so she might be willing to renegotiate your lease if she thinks it will help her keep a responsible tenant.
- You can explore many options, ranging from a reduction in your rent, to moving from a flat rent to a percentage of sales, to a rent abatement, or more.
- An honest, open, informed negotiation can yield results…and again, communication is key. Once you know rent is going to be a problem, the sooner you involve your landlord, the better.
- Beware the Downward Spiral! Cutting payroll without understanding how it will impact the customer experience in your store can lead to a downward spiral – fewer staff to shelve, merchandise, and sell can lead to unhappy customers, which will lead to a further decrease in sales, which will lead to additional sales cuts, which will lead to fewer staff, etc.
- Set a payroll budget for the store overall and for each department. Match employee schedules to the budget, not the other way around.
- Schedule according to the store’s needs. Use backroom staff to cover peak hours and breaks. Control overtime by making all overtime pre-approved.
- Think creatively: find other ways –vacation days, employee discounts – to compensate staff.
- Know that the #1 reason for people to leave their jobs is not money. It is most likely frustration with managers or co-workers, or not feeling recognized and appreciated by their bosses. Keep open lines of communication, be honest about your situation, and recognize good work and sacrifice.
- Simple things can make a big difference to the bottom line
- Replace bulbs with compact fluourescents
- Replace old and inefficient air conditioners
- Use simple but cost-effective green solutions like surge protectors, automatic light switches, tap aerators, and fix leaks
- Sell re-useable bags, and ask customers if they want conventional bags at every transaction
- Follow Vroman’s lead and run a contest for employees to come up with innovative cost saving solutions to implement in your store.
- Don’t be so quick to cut your marketing in Tough Times. It is an important tool in minimizing sales loses.
- The key is looking for inexpensive but effective solutions for your PR plan
- Targeted E-newsletters
- Regular press releases about the store and its events
- Making the most of materials like IndieBound, publisher materials, and other free resources
- Barter with your local community businesses, and cross-promote your programs and services
- Make sure your employees have the tools they need at their workstations to function with optimum efficiency. (POS system station, office supplies, phone, ipage, etc.)
- Streamline purchasing, receiving, accounting systems
- Budget your time with reps wisely
- Align employee performance goals with the changing objectives of your store. In tough times, employees need more, not less, structure and focus.
- Use your time wisely – know when to delegate certain jobs, spend your time doing activities that you and only you can perform.
- Train, train, train – it is very important to train and cross train your staff
- Make staff communication a central focus. Offer them ways to help, and re-direct worry into positive action that will have a concrete effect on the bottom line
These principals work no matter what the situation, and they are the foundation of good business management.
It is very easy in the face of such wide-spread uncertainty to give in to panic, loose focus, and give up. It is important to fight this impulse, and to rise to the challenge by taking positive proactive action.
It is also very important in stressful times to make sure you are taking care of the basics: eating well, getting enough sleep, taking time for family and friends, and connecting with your staff and customers.
You are a community business, and surviving tough times means getting through them with your community–a community of employees, of customers, of economic partners, and of educational partners. You’re all in the boat together.
Manage your business wisely, take care of yourself, look for opportunities, reach out to your stakeholders, and build the strength of your community message, and you will survive your Tough Time whether it’s a sidewalk re-paving or a big fat recession like the one we’ve got now.
Many thanks to Avin Dominitz, Len Valahos and the ABA team for putting together such a solid workshop. Thanks also to Neal Connerty, former owner of Bookshop Santa Cruz, who wrote the original article after 9/11 that inspired the ABA’s workshop. At that point Neal’s business had already survived the San Francisco earthquake of 1987 in which he lost his building and was forced to operate out of a tent. May we all find such strength in our convictions.
You can read the original article here.
Download the entire workshop handout which goes into much greater detail here. (ABA membership required.)