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Find Cash Internally to Survive Tough Times
04/24/09
There's no doubt these are tough economic times. Stores need cash to survive, but where can they get it.
Len Vlahos, chief program officer of the American Booksellers Association, listed two sources for money—external and internal—stores could tap during his Surviving Tough Times educational session at CAMEX 2009 in Anaheim, CA. But as most booksellers know, the external supply dried up as the economy went sour. That leaves them looking within.
"We're beyond the point of having to acknowledge the situation, but how you respond to it matters a lot," Vlahos said. "What we learned from our members is the stores that had staff meetings to talk about the economic crisis and got buy-in from their staff, it made it much easier when the store had to make hard financial decisions. In fact, the staff involved themselves in decisions, so treating staff as key stakeholders was vitally important."
Vlahos said making sure there is enough money to pay employees, vendors, and creditors starts with budgeting and monitoring, which requires leadership and planning. Yearly sales projections are a must and frequent revision is a good idea.
"Doing sales projections informs everything else you do, from inventory to paying staff," he noted. "Look to create that cash-flow information."
Inventory is a good place to begin because its proper management can spell the difference between profits and losses, even in good times. The five areas to consider, according to Vlahos, are paring inventory intelligently, reducing the cost of purchases, cutting freight costs, taking cash discounts, and trimming inventory shrinkage.
Paring inventory means identifying and cutting down on wares that aren't selling well. The problem comes when your store ends up with empty-looking displays.
"Change your displays. Pull out a fixture or remerchandise your store," Vlahos advised. "It's better to have fewer fixtures than having the store look thin. Also, we've seen people starting to merchandise happier. They are trying to take their store a happy refuge, trying to accentuate the store as being that place to escape."
Increasing the average discount paid for merchandise helps reduce the cost of purchases. This can be accomplished by replacing merchandise with higher-profit items or even bringing in consignment items during special times of the year. Reducing freight costs can be achieved by meeting publisher and wholesaler minimums to take advantage of free shipping. In addition, discounts are often available for early payment to wholesalers. These practices are a good way to build relationships with suppliers.
"One thing we're finding is everybody is more receptive to a conversation right now because everyone is feeling the same kind of pinch," Vlahos explained. "If companies see an opportunity to grow a relationship, they are willing to be more creative. It's worth it having the conversation."
Shrinkage is another area that needs to be controlled to help grow profitability.
"Studies show that nearly half of all shrink is employee theft," Vlahos says. "I think a lot of employee theft is unintentional; things like people borrowing books, sloppy backroom policies, and sloppy cash drawer policies. A lot of those things can be corrected by just retraining staff."
Your staff holds many of the keys to make it through tough economic times. But if your employees don't buy into the plan, there could be trouble ahead.
"If sales go down by 10% and everything else stays the same, the two big places you have an impact on is the cost of goods sold and the other is on payroll," Vlahos said. "But payroll is also the hardest one to talk about because you're dealing with people and it's very hard to talk about cutting hours for people who probably need the hours."
The good news about payroll is college stores often have flexibility with part-time student employees. That presents the opportunity to trim hours or eliminate positions at the end of a semester or quarter when students move on.
Public relations campaigns are also effective. PR costs less and is often more trusted by customers than advertisements, according to Vlahos.
"When people read something in an article, an op-ed piece, or a blog posting, they trust it a lot more than they trust an ad," he said. "I would focus on nontraditional media. A lot of college stores have done very well with Facebook ads by creating a page for the store where people can become fans, where it can promote events and create a dialogue with your customers, or by inserting yourself in a conversation they're already having.
"As you cement those relationships and become enmeshed into these dialogues, it benefits the store."
—Dan Angelo
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