PERSPECTIVES

In today's financial climate, how in the world can independent retailers (that's the 92% that are not publicly traded) get financing? 

In most cases banks are not lending (even as they run ads proclaiming their "support for small businesses.") Landlords aren't more lenient, nor are many vendors. Even mothers-in-law are asking tougher questions! 

So, what should a retail owner do? Just give up on the idea of getting financing? Or, worse, accept the cash offers from vendors, payment processors, or POS providers who take their "payments" right off the top of your daily sales?

Well, it is maddening, but The ROI recommends an easy exercise that may be of great help.

How's Everybody Doing?

The Retail Owners Institute® makes it easy for you to get a quick financial health assessment of your own stores, as well as the retail industry, and every vertical within it. 

From farm stores to apparel stores, wine stores to tire dealers, gift shops to convenience stores; all 45 verticals.

Here's how to get started.

• Go to the Retail Benchmarks page of The ROI site.


• Scroll down the page to see the links to all 45 retail verticals.


• Choose the vertical that includes your stores; immediately go to that vertical's Benchmarks page. 


• See the results for each of 6 key ratios for the past five years. To get a better look, just click each image to make it larger. 

Quite a picture, isn't it? Which ratios are trending up? Down? Any suggest some shaky times ahead? Any surprises? But most importantly, how will yours compare?

People don't go into retailing to be financiers. 

• They love the merchandise they sell, and/or they love the people who buy the merchandise. (Think book stores, sporting goods stores, gift shops, etc.) 
   
• Others love the "theater", the excitement of retailing. 
   
• Still others want to be their own boss. 

But few are attracted to the financial part. 

Which is exactly why The Retail Owners Institute website has been built!

Given our years of experience consulting with retailers, especially in turnaround situations, our speaking at conferences and publishing in trade publications, we wanted to "level the playing field" for retailers.

Try as we might, it seems that there will be no avoiding a recession in 2023. How deep it is, and how prolonged, still remains to be seen. 

For retailers, it's not a matter of whether your business will be impacted, just how much. Alas, retail does not lend itself to being recession proof.

However, there are ways to make your business more recession resistant.

The place to start? First, find out what your Debt-to-Worth ratio is right now. That is the #1 measure of the financial strength of your business. It's a key indicator of your ability to weather an economic downturn. 

Each year at this time, our thoughts turn to turkeys. 

No, not the ones that will adorn many dining tables on Thursday. But the "turkeys" lurking amidst your inventory. You know; non-selling, distressed, slow-moving, old, unappealing leftovers among your merchandise. 

But this year, frankly, our worries extend beyond the turkeys. 

Here are some of the reasons why.

• All the gloom and doom talk about the economy and recession continues, affecting consumer attitudes.


• With few pandemic or supply chain issues, many retailers have more-than-ample inventory this year, unlike the previous two years.


• Inflation is impossible to ignore, especially for those who drive cars or shop for groceries.

 

As a result, in this environment, consumers are scaling back their discretionary purchases, and/or choosing to spend on travel, dining out, or other experiences versus retail merchandise. 

Not an upbeat prospect for retailers, is it?

One of the real killers of a retail business can be debt. But, how much is too much?

Debt can be quite stealthy as it grows. 

• Seemingly small expense increases add up in the aggregate – maintenance costs, security, advertising, utilities, payroll, e-commerce charges, etc. 
• Vendors may be eager to offer terms, but that too is more debt. Whether or not you pay interest on it, you still are obligated to pay. And vendors would rather have an accounts receivable from you – it's an asset for them – and a debt for you.

Especially in these times of increasing interest rates, creeping expansion of debt can quickly snowball into a much larger problem.

From the Benchmark pages on The ROI site, we have selected four retail verticals whose Debt-to-Worth ratio shows a frightening situation. The technical term we would use is "spooky, real spooky."

(click on each chart to see all key ratios for that vertical)

A frequent recommendation for how to navigate the current economic uncertainty is to be more diligent about controlling expenses, and focus on profit. (You'll see; we challenge that below.)

Hmm. Concentrating on profits is easier said than done in today's environment, with cost increases proliferating under the umbrella of inflation.

By now, you have your year-end financials for 2021. Remember, it always comes with a Balance Sheet!

Whether sales are up, down, or sideways, the financial strength – and staying power – of every business is shown on its Balance Sheet. And revealed by its Balance Sheet ratios.