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Cutting Expenses The Wrong Way

I was in Walmart yesterday. I had to pick up a few things. At the checkout, the cashier kept doubling bagging all of my items. I asked her why.

“These bags tear so easily that almost everyone has a ripped bag at the end. They used to be better but these new bags are too thin.”

Image result for walmart grocery bagsI hope for Walmart’s sake that the new bags are less than half the cost of the old bags. Otherwise their cost-cutting move is costing them more than it saves.

I get why they did it. I’ll bet their bags are a huge expense for them. I’ll bet someone pitched them the idea of a cheaper bag, or knowing Walmart, they probably went to their vendor and demanded a cheaper bag. The only way to make it cheaper was make it thinner. And now their employees are double bagging everything so that you can get your groceries home in one piece.

How’s that cheaper bag working out for you?

Bags, like so many other non-merchandise items, seem like a hassle expense. You know you need them but you hate paying for them. I know I did. But that didn’t stop me from buying better, thicker bags than I probably needed. Mostly because I also looked at bags as being a reflection of my brand. Cheap, flimsy bags send the signal that I care about my money more than I care about you. Sturdy, reusable handle bags say I care about you more than I care about money. (Remember that Values post I just wrote?)

The problem is that we too often look at our expenses as single, individual entities instead of how they fit into the whole. We make decisions on those expenses purely on a financial basis instead of thinking about how we want to present ourselves and how we want our customers to feel about us. You have to consider everything, otherwise your cuts may end up costing you more.

In the 68 years we ran Toy House, one of our most profitable years was 2009, smack dab in the middle of the great recession. I had to cut expenses that year to get that profit. Here is a post I wrote January 11, 2010 about how I cut those expenses … “Cutting Expenses the Smart Way”

Sometimes you need to cut expenses. How you cut them is often more important than how much you cut them.

-Phil Wrzesinski
www.PhilsForum.com

PS This trip down memory lane looking at old blogs has been fun for me. Maybe it will be fun for you. Here is a link to one page with all 897 blog posts to date.

Is the Retail Apocalypse Upon Us?

You have to be older than me to remember Shopper’s Fair. That was the first store that, back in the early 1960’s, was going to put my grandfather out of business. They were gone before I was old enough to spend my first dime. I do, however, have memories of Woolworth’s downtown and Montgomery Ward at Westwood Mall. I remember walking through Montgomery Ward, marveling at how big the store seemed. (I hadn’t yet been to Macy’s in Manhattan.)

Shopper’s Fair, Woolworth’s and Montgomery Ward are gone. Each because of their own individual circumstances. Here is a list going around the Internet these days of current closures and stores struggling in retail.

Businesses often cite a variety of reasons for closing:

  • Poor Economy
  • Changes in Industry
  • Unfair Retail Landscape Slanted Against Them

The reality is that most closures happen because of a Lack of Cash Flow. 

When the money quits coming in, the stores don’t have the money to pay the bills, don’t have the money to replenish the shelves, don’t have the money to invest in technology, upgrade the infrastructure, or train the employees. Lack of cash starts a downward spiral that is hard to escape.

More often than not, that Lack of Cash Flow happens because of Bad Management. Bad management of:

  • Employees—no training on how to relate to today’s customers, build the relationships that matter, and make the sale
  • Inventory—old merchandise, too much merchandise, too little merchandise, the wrong merchandise
  • Change—not adapting quickly enough to the changes in the industry (All industries change. Some disappear. There is a distinction.)
  • Goals and Vision—not having a clear view of where you want to be today and where you are going tomorrow

Many stores have found ways to thrive in an unfair retail landscape slanted against them. Many stores have found ways to navigate the changes in their industry and customer base. Many stores have found ways to thrive (or at least survive) in poor economies. 

Bob Phibbs, aka The Retail Doctor, posted an amazing blog about the experience (or lack thereof) in music stores today that addresses the first bullet point above. As a singer and mediocre guitar player, I can relate to everything in his post. This is a problem abundant in retail right now, and one that can be easily addressed. Amazon isn’t winning customers so much as brick & mortar stores are losing customers. Go read it right now.

It will be the best thing you read this month.

Overall, retail is growing. The stores in the meme above are losing market share to their competitors because management hasn’t trained them well, positioned them well, or managed their resources well.

Is the Retail Apocalypse upon us? I don’t think so. Stores open. Stores close. Just ask Shopper’s Fair, Woolworth’s and Montgomery Ward.

-Phil Wrzesinski
www.PhilsForum.com

PS I have seen the above meme used by the left to lay the blame for these closures at President Trump’s feet in much the same way many on the right tried to hang everything bad around President Obama’s neck for eight years. I have news for you. None of these closures are because of who is president or what the president has done. They would have happened under Hillary Clinton, Bernie Sanders, you, or me.

PPS Yes, my store was a victim of cash flow problems. Our market share didn’t change, but our local market did. Because of shrinkage in population, household income, and the average money spent on toys, our market in 2016 was only 53% of what it was in 2007. Our store was too big for our economy. We could have shrunk it down to fit, but we wouldn’t have been the store you remembered. We chose to close instead (a choice discussed in the boardrooms of every one of those companies listed above). With Toys R Us closing, many have asked if I will reopen. Unfortunately, the market hasn’t improved enough to justify reopening.

Indie Retailers Best Poised for New Retail Model

A few years ago I went to lunch with a fellow toy store owner. I had wanted to see his store, so we made plans for me to visit and then go get lunch. Since we were in his town, I left it up to him to pick a place for lunch. What he said next I still cannot believe.

“Well, my favorite lunch place is out because I went there yesterday. A couple of our city council members stopped by and took me to lunch to ask me if there was more they could be doing for my business.”

Jaw meet floor.

That kind of respect for a local independent business is a rare bird in the world of government. Instead we see communities falling all over themselves to throw money at Amazon, not realizing that even if they don’t get an Amazon HQ or DC, they are still “giving money” to Amazon as local tax revenues are lost while local independent businesses struggle to survive.

For most indie retailers, even the government is slanted against us. You pretty much have to be a chain store or opening a mega-store for government to throw you any kind of bone.

In spite of all that, local independent retailers are starting to see a surge.

In a recent article discussing the problems plaguing Walmart, the author said, “Selling products to strangers doesn’t cut it anymore. To succeed in retail today you need to start with the customer, not the product.”

The article went on to talk about how several eCommerce sites are expanding into brick & mortar to better serve the customers.

Do you know who is best-suited to take advantage of this it’s-about-the-customers-more-than-the-products era of retail? You guessed it! Local independent retailers.

Believe it or not, it hasn’t been about the products for indie retailers for over a decade. It used to be that if you invented a new product you had to pitch that product to existing vendors or go into manufacturing yourself and pitch it to a handful of indie retailers to get started. Then, after the product gained traction and had sales history, bigger vendors might take interest. Once the bigger vendors got their hands on it, the product could make its way to the masses.

That model is gone. Now if you have an idea, you crowdfund it and launch it online until the big guys swoop in and buy you out.

Local indie retailers have had to build relationships with customers and offer them curated selections of great items they’ve likely never seen before to succeed. Fortunately, that model works. According to the article, that’s the new model of retail. According to me, that’s also the old model of retail.

Fostering relationships with your customers and building loyalty through something other than a frequent purchase discount never goes out of style. 

The simplest way to do that is:

  1. Figure out what she desires, needs, and expects.
  2. Give her more than she desires, needs, and expects.

I call that the Simplest Business Success Formula Ever. This is what the companies in that article are doing.

This is how you compete in today’s retail environment. You can’t control what product fads will be hot. You can’t control what vendors will stab you in the back (pro tip: every year at least one vendor goes back on his word about a product or product line he promised to keep exclusive to the indie channel.) You can’t control what products you will actually get shipped. On top of that, you can’t control what happens to the local, state or national economy. Nor can you control Mother Nature.

But you can control the experience someone has in your store. You can control the type of people you hire and the training they receive to be able to figure out those expectations and exceed them regularly. Do that and you’ll control your destiny as well.

-Phil Wrzesinski
www.PhilsForum.com

PS Your local government would do well to understand the formula, too. If they would create an environment where the needs and expectations of indie retailers were met (and exceeded), they would see tax revenues begin to rise. Indie retailers typically have more staff and a higher payroll per sale than the chains. Indie retailers typically use less land and less local services (police/fire etc.) than the big chains. They also create character, draw outside traffic, and give local communities their charm. Yet, in the last twenty-five years, that opening story is the only time I have heard firsthand about a government trying to exceed the expectations of their most profitable “customers”.

What to Do With the First Quarter Blues

I went for a walk/jog down the Falling Waters Trail a couple days ago. It was sunny and in the mid-50’s. My dog, Samantha, and I enjoyed getting out of the house. There is something about those early spring days when you get that sense of renewal, that rebirth of energy. Of course, today, I stare out at five inches of snow courtesy of our bipolar vortex. Just when you think you’ve turned the corner on winter, Mother Nature smothers you with another blanket of white. So much for that rebirth of energy.

It’s easy to get the blues.

Image result for cabin fever clip artEspecially if you’re a fourth-quarter retailer. January feels like a relief from the exhausting marathon of Christmas. But by February, when the bills have all been paid and it doesn’t seem like any new cash is coming in, it gets to be a drag.

If you’re a jeweler or florist, you get Valentine’s Day. If you’re a toy retailer or candy shop you get Easter. But that isn’t a lot to carry you through the First Quarter Blues.

Here is a list of different things you can do during the quiet times to combat the blues.

  • Paint the store. A fresh coat of paint brightens the mood and lifts the morale of the staff.
  • Re-do all your signs. Print new ones, change wording, make them more fun and in alignment with your Core Values.
  • Work on new selling techniques. Hold trainings, do role playing, practice new techniques.
  • Make displays for out-of-your-category gifts. For instance, January-March are big baby shower months (no one wants to hold them in November/December because of the holidays). Put together an endcap of great “baby shower” gifts – even if you don’t sell baby products! A hardware store could do a display of “build your nursery the right way”. You could also do “gifts for the mom/dad-to-be.” Get creative. The same is true for weddings. The bridal shows are January-February. Bridal showers are March-June. Put together “bridal/wedding gifts” like board games if you’re a toy store (the family that plays together, stays together), or tool kits. I got a drill as a wedding gift from a thoughtful friend.
  • Get creative with your social media. Post often about a wide variety of things (not all related to selling your products). Have a contest among your staff. Make them all admins. Allow them two posts a day. See who can get more comments and shares in a week. Pay the winner $20. Do it for five weeks. It will be the best $100 bucks you spend on social media this year because you’ll see what kind of posts move the needle.
  • Have a contest of some kind. Maybe a raffle for charity. Maybe a “taste-test” where you put two competing products side by side. (I can see this for tools, for toys, for shoes, for cleaning products, for foods, for strollers …) Maybe a competition. We did a five-week March Games Madness where we pitted four games against each other for four consecutive Friday nights. The game voted the best each week made it to the final four. The fifth week we crowned the champion.
  • Spend more time networking. Send everyone on your team to different networking events.
  • Rearrange the floor layout. Stand at the front door and look around. See what catches your eye. Redesign the store so that your customers can see farther into your store. And make sure something cool and compelling is in those sight lines.
  • Clean and fix everything. Everything.
  • Make your bathroom cool. When George Whalin wrote Retail Superstars: Inside the 25 Best independent Stores in America, he mentioned the really cool bathrooms for 14 of the 25 stores.
  • Make a list of your top 50 or 100 customers with phone numbers. Assign them to your staff to call each person and personally thank them for shopping in your store. No sales pitch. Just a simple, “I want to thank you for being a customer last year. We truly appreciate your business. Have a great day!”
  • Make a goodie-bag for those same top 50 or 100 and personally deliver them. Free. No questions asked. (Thank you Brandy & Eric for this idea!)

The customers will be back soon enough. You have new products rolling in. Take this time to plant the seeds for future sales by refreshing the store, training the staff, and getting creative with your marketing.

That’s how you beat the First Quarter Blues.

-Phil Wrzesinski
www.PhilsForum.com

PS I would love to hear your suggestions for additions to this list. I know there are some really good ideas out there. Help me share them with the world.

Two Pictures to Make You Feel Better (Or Worse?)

I started writing this blog August 9, 2008, shortly after my first gig as a public speaker for the retail industry. My first post was about a Christmas present I received and the announcement that I would be playing guitar in public* for the first time at the Nomad Bookhouse.

(*Apparently back then I didn’t consider playing guitar in church as part of worship “playing in public”.)

By October of 2008, a group of us local business owners had launched Jackson Local First, our Shop Local organization for the community, and my blog changed. From that point forward it was less about toys and Toy House and Phil, and more about you, the indie retailer and small business owner finding new ways to compete with national chains and the Internet.

Since those early days (and you can find every single post archived on my website) my goal has always been to help you feel good about being in this career by showing you concrete ways you can compete and win, while also giving you the background information why those ways work. If you are new to this blog, you might want to sift back through some older posts. There are some true nuggets tucked away for those willing to look. (Okay, so maybe you’re a little busy right now. Put it on your calendar for January.)

This post, however, might not make you feel all that great. I’m going to post two pictures taken in the two malls here in Jackson.

Here is picture #1 …

This picture was taken on the Saturday of Labor Day Weekend—a typical shopping holiday—in Westwood Mall at 11:30am (anchor stores of JCP, Younkers, and Walmart). Notice the lack of shoppers. Now, in all fairness, Jackson is a county filled with lakes, so it is possible the lakes trumped shopping. You could roll a bowling ball the length of that mall without fear of hitting anyone.

Here is picture #2 …

This picture was taken last night at 7:46pm in our other mall, the bigger, busier one with Toys R Us, Target, Best Buy, Kohl’s and Sears as anchors.

Once again, this could be the result of the economic woes in our county and the shrinking population—the two factors that led to our choice to close shop. Or it could be a symptomatic problem with a much bigger cause. (What I find most amazing in this pic is that this is the “walkers” mall and there isn’t even a group of walkers pacing the corridor.)

Malls everywhere are in decline. This problem was reported heavily in 2016. And now with the Retail Apocalypse of 2017, you can expect traffic to decline even further.

Like I said, this may not make you feel better, especially if you are in a mall location.

Here is why you should feel better.

The decline in mall traffic is really caused by two things—cellphones and incredibly poor customer service. Cellphones have replaced meetups. You don’t go meet your friends at the mall anymore because you’ve been texting them all day long. Many people thought teens hanging out at the mall would be a bad thing. It wasn’t. Someone had to drive those teens (malls weren’t typically located in high-density neighborhoods). Parents who drove their teens to the mall would often stop in so as not to waste a trip. That familiarity led to future trips.

Unfortunately, those days are long gone. The mall is no longer a meet-up, drawing its own traffic. You have to want to shop there to even bother making the trip.

That’s where the stores, themselves, have failed. Too many mall stores relied only on the mall and its anchors to draw their traffic. They never knew how to draw traffic themselves. As the malls drew less and less traffic (and/or the anchors kept expanding their departments to eat into the mall stores categories), these stores cut back on personnel to match dwindling sales. Of course, that led to a downward spiral in what was already poor levels of customer service.

Is it any wonder that Outlet Malls, where Transactional Customers don’t expect any service in the first place, continue to draw traffic while traditional malls suffer? When someone else is drawing your traffic and options are fewer, you can get away with poor customer service. That type of retail climate no longer exists.

Nowadays ALL retail is destination retail. People only go to shops by choice.  Since independent retailers have always been destinations by nature, you are best suited to win the brick & mortar dollars of today (of which by last count there are still over a trillion of them). You win in this game by being the destination, the store everyone wants to go to because it is fun, exciting, worthwhile, important, friendly, helpful, surprisingly delightful.

Those pictures aren’t meant to scare you. They are meant to inspire you. The malls didn’t lose to the Internet just because the Internet exists. They lost because they didn’t take care of their customers.

-Phil Wrzesinski
www.PhilsForum.com

PS This does beg the question … If you are in a mall, should you move? The answer is complicated. If you truly have created a destination store, you can make it work almost anywhere. If you are paying mall prices and not getting mall benefits, however, you might want to contact a realtor and see what is out there. We’ll discuss the pros and cons of location later, okay?

Other Uses for Market Share Knowledge

The first time I was truly introduced to the idea of calculating my market share was from Roy H. William’s second book Secret Formulas of the Wizard of Ads. It was 2003 and I was trying to learn all I could about marketing and advertising. My math was rudimentary. I didn’t adjust for local economy or youth population. Simply raw numbers. I came up with our market share at about 12%.

At first I was a little disappointed. Roy teaches that the gold standard for any business is 30% market share. That’s a big number. Despite its dominance, even Walmart only has 25% of the grocery market. The optimist in me, however, said 12% was a good starting point and now I had a goal to shoot for. I had just read an article (which 14 years later I cannot find—go figure) that said only 9% of the general public was inclined to shop at local indie stores in the first place. I was already 3 points above that number.

I never did reach 30%, but I did have some other revelations about my Market Share number.

Image result for upward trend free clipartFirst, after going back and adjusting my market size for economy and youth population, our 12% was really closer to 16%. It stayed in that neighborhood until a Walmart Supercenter opened in 2005. We dropped into the 14-15% neighborhood and stayed there until Amazon became a serious player in the toy industry around 2010-2011. We stayed around 12.5% for the next several years until we closed. Even though you can beat a big guy head-to-head, the more big guys in town, the more businesses taking a piece out of the same pie.

Second, that original 12% number got me thinking. A full eighty-eight percent of the market were NOT currently shopping with me. That’s almost 9 out of 10 people. When you look at it that way, it changes your perspective on a lot of things.

In terms of marketing and advertising I realized I didn’t need to reach the entire market to grow my business. If I could just convince 1 more person out of 20 people to shop with me I would have growth beyond my wildest dreams. I really only needed to convince about 2 more people out of 100 to shop with me to have double digit growth. If you only are trying to sway two people out of a hundred you might say something totally different than if you’re trying to sway fifty out of a hundred. With two you can say something direct and personal to a small audience that gets right to the heart of the matter. Trying to reach fifty, you say something generic and non-offensive hoping other forces will come into play to swing them to your side.

In terms of product selection I realized I didn’t have to be all things to all people. I could pick and choose the products I wanted based on my beliefs in the products and how they benefited my customers. Not only does that help with the buying decisions, it helped us stay true to our core values in terms of what we sold and why.

Speaking of Core Values, we didn’t have to be someone we were not.

Meg Cabot said it best when she said, “You’re not a hundred dollar bill. Not everyone is going to like you.” We didn’t have to be liked by everyone. Sixteen percent is a pretty low approval rating. Yet it was higher than any other single store in our market.

Knowledge is power (France is bacon). Knowing your market share might be the piece of knowledge that finally liberates the way you think about your place in the market and the risks you can now safely take with your business.

-Phil Wrzesinski
www.PhilsForum.com

PS Let me first admit that 16% is actually pretty high for an indie retailer. Many of you might do the math and find yourself in the 3-5% range, especially if you have other indie retailers fighting for the 9% that skews shop local. But before I pat myself on the back, you should know that in the early 1980’s we were at that mythical 30% gold standard and then some. Of course that was before Jackson got Walmart, Target, Toys R Us, Sam’s Club, a second Meijer, a new KMart, and a whole slew of other big chains in town (without a population growth to match), and well before Al Gore invented the Internet. We were the large store that was here first. That’s what gave us much of our edge. But even if you do find yourself in the 3-5% range, if the market is big enough, you can do a lot of business with only 3-5% of your market. Plus, when you only have to convince 1 more person out of 100 to get 33% growth, advertising becomes a whole lot more fun.

PPS It used to upset me that about half my friends were not regular shoppers at my store. My parents saw about that same percentage from their friends. Then it dawned on me … Fifty percent of my friends versus twelve percent of the general population. I was ahead of the game. I slept much better that night.

Taking a Deep Breath of Perspective

We all meet interesting people from time to time. For one year I had a person enter my life that gave me a world’s worth of perspective. At the time he was the store manager of one of the big-box discounters in town. While our sons shared activities together, he shared amazing information not only about his store, but about all the big-box discounters in town. It was eye-opening to say the least.

If you have only recently found this blog, you should know that I am a big believer in calculating and understanding your overall market size for your category and knowing your share of that market. The easiest way to find the size of your market is to find national numbers for your industry, divide by the US population and multiply that result times your market population.

For instance, if you are in a $20 billion industry, divide that by 323 million people in the USA to get $62/person. If your market is 150,000 people, then multiply $62 x 150,000 to get a market size of $9.3 million. You can adjust that number up or down based on your local economy (your average household income versus the national average). You can also adjust for other factors like geography (more boats are likely to be sold in Michigan or Florida than Nebraska), or demographics (your percentage of children compared to the national average if your category is marketed primarily to children). It gives you a rough estimate, that if you calculate the same way year after year shows you exactly where you stand in your market.

I’ve been doing this in the Jackson market for decades and measuring our share over the years.

My big-box friend handed me numbers of what the big-box stores were doing in toy sales in our market. Adding them up, the math fit what I already knew about the size of the market in Jackson. The part that made my heart flutter was knowing that I was doing more in my single store than any one of those big guys.

 

Is it a Vase or Two Faces?

Here’s the perspective part … 

All of these stores do way more volume overall than I do because they also sell grocery, clothing, hardware, electronics, and household goods among other stuff. All of these stores have way more traffic on a daily, weekly, monthly basis than I could ever imagine. All of these stores run weekly sales and discounts with huge flyers in every Sunday’s paper to go with their national TV campaigns and other advertising efforts. All of these stores focus on the hottest TV-advertised toys every year, adding the vendors’ marketing efforts to their own. All of these stores get full-blown media coverage, too.

Think about that last one for a second. This holiday season you are going to hear stories about Amazon, Walmart, and Target. All. The. Time. You are going to hear about their sales. You are going to hear about their overall volume. You are going to hear about their strategies to draw more traffic (more discounting—you read it hear first!) Your customers are going to hear all that, too.

Yet locally, without the discounting, without the hot items for your industry, without the national TV campaign and Sunday flyers and vendors marketing for you, without all the grocery-driven traffic, without all the media hype, you’re going to stand toe-to-toe with these big giants and still do amazing numbers in your category, maybe even equal or better than they do individually.

When people tell you it is all about price, and that discounting is the only way to get sales, go ahead and nod your head in agreement until those uninformed people walk away. Then remember that a guy in a small, depressed, blue-collar city in Michigan with all the inherent disadvantages was able to beat all the big guys through better service, better staff, product knowledge, smarter marketing, and higher prices.

You will, too!

-Phil Wrzesinski
www.PhilsForum.com

PS Calculating Market Size and Market Share can be incredibly helpful, even if your business is growing. If your market is getting bigger, but your share is decreasing, then even though you are growing, you are still losing out to competitors. Something needs to be fixed. It can also help you understand why sales are decreasing and when to get out of the market. We saw our market shrink to a size that wouldn’t sustain us in our current model. Our options were to shrink to fit the market, move to a different market, or close. We chose the latter so that I could spend my time helping a bigger market … you!

PPS That store manager left Jackson the year after we met to run a larger store in another part of the country, but not before leaving me with a wealth of knowledge and a perspective for which I am eternally grateful.

The Scary Truth of Averages

“Have you ever noticed that everyone wants to be normal but no one wants to be average?” -Roy H. Williams

Did you hear the one about the statistician that drowned in a river with an average depth of three feet?

Image result for averagesIn business, everyone wants to know the averages, the average cost of rent, the average sales per square foot, the average level of inventory, etc. Averages are interesting. They can be a nice benchmark, but they can also be misleading, and sometimes downright dangerous.

Take, for example, average inventory at cost (a number you should all be tracking). If you were an average toy store doing around $500,000 a year in sales, your average inventory at cost would be around $100,000. But if you are that same toy store, your Thanksgiving to Christmas sales will likely be around $200,000, or pretty much all of your inventory if you only had the average on hand. As nice as it would be to sell to the walls, so-to-speak, you know you can’t sell it all. You also know you need some inventory in January for birthdays and post-Christmas.

Just trying to keep your store at the average will kill your holiday sales. You’ll need a lot higher inventory to start the busy season and much lower inventory the rest of the year. Rarely will you ever have the “average” amount of inventory on hand.

Another problem with that average is that $100,000 worth of toys looks a whole lot different in a 2,200 square foot store than it does in a 1,100 square foot store.

The bigger the store, the more creative you may need to be with your merchandise to keep the store looking stocked and full. The smaller the store, the more creative you may need to be with your merchandise to fit it all in. Sometimes your store space dictates your inventory levels more than just sales or industry averages.

Averages are a nice starting point, but it is worth exploring all the reasons you might deviate from the average, and be okay with those reasons.

For instance, my payroll at Toy House was a significantly higher percentage of our expenses than the average toy store. But I could afford that because my rent was significantly lower. Our sales per square foot was extremely low compared to the average, but that was because we had wide aisles to allow for shopping carts, four cash registers lines, a large gift-wrapping area, and a stage with seating/playing area—in other words, a lot of square footage not used for showing merchandise. Our average ticket, thanks to shopping carts and toy demos however, was significantly higher. Each deviation from the norm was on purpose and with a purpose.

I do many talks about the financials of independent retailers. Whenever possible I try to use an average store for that industry. But I remind everyone in attendance that these numbers are average and they should be striving to be spectacular. If all your numbers are average, you haven’t found the place to stand out and make a name for yourself.

In retail, there isn’t a prize for being normal.

-Phil Wrzesinski
www.PhilsForum.com

PS The upside to averages is that they give you a quick check of the health of your business. If you have a number way off from the averages and you don’t know why, that might be a good place to focus your time and energies on changing. The downside is that you don’t ever want to be an average store. You are destined for greater than that.

PPS Rent per square foot and sales per square foot go hand in hand. You need to be selling at least 10x more per square foot than what you pay in rent (if your profit margin is around 50%). That’s a far better benchmark than average rent or average sales per square foot for your industry. Those averages tell you nothing.

When It Is Time to Move

Maybe it is declining sales in your current location, or maybe you’ve peaked out your sales and don’t have the room to expand. Maybe the demographics of your location have shifted or maybe your store’s product mix doesn’t fit in with the surrounding stores. Maybe a new development has made you an offer too good to be true.

There are dozens of reasons you can justify for moving your store (and just as many for staying put – too costly, lost sales during the move, will the customers still find us? can we afford it? is the grass actually greener? etc.)

The decision to move your store has to be something you research and consider the issues carefully. A bad move will sink you. A great move will grow you. A lateral move will wear you out.

Here is the short version of this blog…

  • Don’t move unless you have to – if it ain’t broke, don’t fix it
  • Prioritize what you need from your new location – More Traffic? Parking? Accessibility? Visibility? Better Demographics?  Do your research
  • Plan for extra expenses – moving costs, lost sales, etc. all add up quickly
  • Buy what you can afford – yes you expect your business will grow eventually, but make sure you can afford it on day one.

NO LONGER SUITS YOUR NEEDS

The first decision is the desire to move. You move when your current location no longer suits your needs. Your business model is working but your location isn’t the ideal spot. It’s too small, too big, too quiet, too expensive, too hard to find, wrong demographics, wrong part of town. There was an auto dealer in San Diego that was constantly advertising that if you would work with their location, they would work with your price. It became their gimmick, but at a great advertising expense. That low overhead from the lousy location was instead spent on advertising and profit margin.

Moves are risky. There are no guarantees your move will grow your business. If your current location suits your needs, the risk factor for moving goes up exponentially and it is often better to stay put.

WHERE DO YOU GO?

Just making the decision to move is huge, but you have to also know where you want to go. What are you lacking at your current location? Is it traffic? You’ll likely have to pay more in rent to get better traffic. Is it space? You can find bigger spaces, but you might have to give up something else like traffic or parking.  Is it better demographics? Do you know your demographics well enough to know what “better” demographics look like? The most important question is this…

Can you afford the new location with the money you’re making currently?

We all would like to think our business will grow hugely at the new location. But that isn’t always the case. Plus there are a lot of costs involved in moving that eat up any extra sales and profits. You have the lost days of sales while you move. You have the build out of the new place. You have the changing of phone and address and lost mail and lost shipments. You have the revving up of the new location as your regulars try to find you before the newbies have discovered you. You have the advertising of the change of address including the banners at the old location, the grand opening banners at the new location, the advertisements and the big grand opening event itself.

PRIORITIZE YOUR NEEDS

We moved once in our 67 years in business. The store started in a house. We bought neighboring houses and tore them down for a parking lot and a couple expansions. But we maxed out our location at about 10,000 square feet. My grandfather wanted three things in his move. First he wanted a larger building. He drew up two plans for a 20,000 sq ft building and a 24,000 sq ft building. Second he wanted to be along the busiest road in the downtown district (suburban shopping malls were not yet a thing in 1967.) Third, he wanted his own parking lot.

He found his location – an easy right hand turn off the busiest road in the downtown with plenty of room for parking in both the front and back of the building – and opted for the 20,000 sq ft building because that was all his current level of business could afford. He also had the expenses of moving. Even as a big fish in a small town, the newspaper didn’t cover our move. He had to take out his own ad in the paper. He used this picture with the headline,

“But Grandpa, Momma Won’t Like it if We Play in the Mud”

Yes, his business grew – fast enough that he needed that extra 4000 sq ft only five years after moving. Fortunately he also had the foresight to buy a piece of property that would allow such growth, and he now had the money to pay for it.

That location served us well for many decades even as new competition came to town. But when the demographics of the whole county changed, so did the options for moving. The criteria that served us well before were no longer the criteria we needed. Our options were downsizing greatly or moving to a new community, neither of which we wanted to do.

Moving is a big deal and can be a huge benefit for your business. It can also sink you. Make sure you are moving for the right reasons.

-Phil Wrzesinski
www.PhilsForum.com

PS I didn’t discuss renting versus owning. That is a topic worthy of its own post (or three).

In Retail it is All About Location

Let’s get the elephant out of the room right away.

How can I write a blog about being a successful retailer when I closed my retail store? I can sum that up in three words…

Location. Location. Location.

Yes, we were having a tough time with cash flow. That’s the usual culprit behind any store closing. Much of that was due to our location.

Location Issue #1

The population of Jackson has been stagnant at best the last several years. The youth population, however, has shrunk considerably over the last several years as birth rates declined for all groups but teens, and school enrollment is down huge since 2007. On top of that, average household income in the city fell from around $35K per household to $27K per household (well below the national average of around $56K).

I have constantly talked about paying attention to your Market Share. To know your Market Share you first have to know your Market. Ours has shrunk over 40% since 2007. Fortunately, our share of that market only dipped a little. We still had our piece of the pie, but our pie had turned into a tart.

Location Issue #2

We own and occupy a large building on the north edge of downtown. We have been a large toy store for decades, carrying toys, hobbies, baby products, sporting goods, scouts, and more. When the market could bear it, we had a ton of inventory, but scaling back inventory to match the needs of the community meant less efficient use of space and less of the “impact” of being that large store that had everything.

We discussed converting to a smaller store, more in alignment with the population and income, but that would have led to many long-time customers lamenting that we just weren’t the store we used to be or the store they remembered. Better to close while the memories were still positive.

Location Issue #3

I am a big believer in downtowns. Call me naive but I still believe downtown shopping districts can be successful. It takes dedication from the shop keepers, the landlords, and the city leaders to make it work. It takes smart policies, united fronts, and strong relationships to make it work. We have some of that in Jackson, especially among the retail owners. We also have a city council dedicated to improving the streets and sidewalks and green spaces in our downtown. Unfortunately, that also means a ton of disruptive construction. Two years of it! (and counting.)

Our city leaders are not retailers and don’t understand how construction affects retail. They saw an opportunity to get roads fixed and attract new development (all good things), but didn’t see the consequences to the existing retailers and restaurants. When you are trying to dig out of a cash flow hole, having the busiest street in town – the one that goes right by your building – be restricted from three lanes to one with backups that stretch for blocks for an entire spring and summer is not a good recipe for success. At one point we had so much construction downtown that one detour actually led you to another street closure dead-end, and only if you had local knowledge would you know which alley would get you back to open road.

In a couple years, our downtown is going to be new and fresh and repaved and ready for business. But the last two years were pretty tough on the businesses already here, especially for us as our market declined.

Yeah, Amazon is a deal-changer for many retail categories. Yeah, our own vendors are making decisions that hurt the indie retail channel. Yeah, customers are as fickle as ever and have power like never before. None of those are insurmountable. You can still compete. Even as we closed, we were holding our own for our market. We just didn’t like the direction our market was heading.

If your market is your problem, you can do one of four things, Move, Close, Change or Wait. We chose to close.

Now you know.

-Phil Wrzesinski
www.PhilsForum.com

PS I’ll discuss the other three options and what would make them attractive in future posts. Right now I have to go let the big elephant in the room out to roam the savanna.