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.
So, with this as your starting point, your goal is to get your Debt-to-Worth ratio lower. How to do that?
Well, it won't be easy. But here are some ways to start.
(By the way, prepare your mindset: you likely will be incurring losses. Since the only way to pay amounts owed is with cash, you must choose cash over profits.)
And every month, recalculate your Debt-to-Worth ratio. This is a very important step! You must monitor your progress. Is the Debt-to-Worth ratio going down?!
As you reduce debt, your Debt-to-Worth ratio will be improving – that is, it is getting to be a lower and lower number. And that means the survivability of your business is increasing during what may be a downward economic cycle.
And once the recession subsides, your business will be well-positioned to seize the opportunities of a better economic climate.
After months of doom-and-gloom headlines and hand-wringing about a recession in 2023, headlines last week (quietly) said this: "What Recession? Some Economists See Chances of a Growth Rebound." One economist, in fact, seemed a little chagrined to note "So far, the U.S. economy has proved unexpectedly resilient." *
Retailers must be mindful of all this as they make their business and buying decisions throughout the year. But the macro economy is simply interesting, but not significant. Your local economy is, of course, what really matters.
In that context, every savvy owner uses these three steps.
The playing field has shifted dramatically under the feet of retailers.
Merchandise orders placed months ago are now proving to be "too much stuff that consumers no longer want so much of," as was reported rather colloquially just 3 days ago. All this was summed up this way: "Retailers with slower inventory turns might find current conditions especially difficult to navigate." *
Now, look at the chart at the top of the page. Without being dramatic, it may be a lifesaver for your business this year.
A few years ago, during a planning session in our office, we drew a quick diagram on a whiteboard. It showed three shapes.
Out of all of the potential things we could do, which ones truly warrant our time, energy, and resources?
That picture keeps coming to mind as the COVID-19 shutdown orders on retailers of "non-essential" goods are starting to be lifted.
Is 2020 continuing to wear you down? No surprise. And no shame in that!
Retailers are among the most optimistic folks we know. But the relentlessness of the disruptions and in some cases tragedies of the three pandemics – the virus, the economic meltdown, and the civil unrest – followed by the wildfires in the West and the hurricanes in the Southeast, now compounded by the uncertainties of national election. Oh, and then there's the impending flu season. And... And...
It IS a lot. And it feels as if there is no relief in sight. But maybe there is.
Many times during 2020 we spoke of "disruption with a capital D!"
And now, more than a third of the way through 2021, that Disruption with a capital D shows no signs of abating. Instead, it just keeps morphing (not unlike the Covid strains that keep emerging....)
But the disruption that we see emerging is in the attitude, deportment, and psyche of Millennials, and the many people who are now acting like Millennials. This is showing up in the attitude of shoppers as well as employees.
Consider this retailer, whose sales over the last 4 weeks are down 12% compared to last year.
Some retailers in this situation essentially freak out.
But others know to keep asking questions. Before they decide what to do next to fix lagging sales, they want to know "Why?"
So, here is one way to get to the numbers behind the numbers; to begin to know the "why" of your sales trends.
All it takes is tapping into the data that's already in your POS system, and putting together a little summary tally sheet. Here's one example.
Still less than $1 a day! 👀