PERSPECTIVES

From The Co-Founders

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Tips, Tactics & Strategic Insights and Commentary
from The ROI Co-Founders, Pat Johnson and Dick Outcalt
Outcalt & Johnson: Retail Strategists LLC; Retail Turnaround Experts

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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. 

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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.

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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?

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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)

Pharmacies & Drug StoresFlorists

Office Supplies & Statiionery StoresPet & Pet Supplies Stores

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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.

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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.

 

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Keeping Perspective

Is there a more difficult everyday challenge?

As owners of businesses, we've got all of the issues of the times right on our plates. Think about it:

  • Every family has ups and downs. In fact, every person does.
  • And it seems that all of our constituencies – family, friends, neighbors, customers, employees, landlords, lenders, vendors – look to us for answers, for leadership. "Well, after all, you are the owner!"
  • Meanwhile, the covid turbulence has magnified the fact that there's really no how-to manual for dealing with a wily once-in-a-century pandemic.

Is there a more difficult every day challenge than maintaining perspective? We don't think so.

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The definition of a good coach is “That person who makes you do the things you don’t want to do, to become the person you want to be.”

Given that, we would suggest that the pandemic proved to be a great coach for many retailers. So much so, "Coach P" really deserves being recognized as the Coach of the Year!

Think about it. The pandemic forced retailers to do things they had long evaded or delayed (remember “technology laggards?”) 

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The #1 responsibility of every retailer is to manage and control the inventory. By doing that, you are managing margin, profit, cash flow...also known as success!

Managing inventory demands a merger of art – the selection of merchandise – and science – the quantity of merchandise at any given time. 

And here is a formula that makes the science part accessible for every retailer. All you need is a pencil to do this (remember those?) And it can and should be embraced by every retailer!