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Author: Phil Wrzesinski

No More Pollyanna, It’s Time to Talk Cash

Okay, enough Pollyanna posts about being positive in a down economy. Enough about turning off and tuning out the media. You can only control a few things. Over the next few weeks we’ll talk about those few things you can control in concrete ways.

First, and foremost, is Cash Flow. In retail cash is king. Without it you’re dead in the water. With it you’re ready to meet the new demands of a new market.

The tricky thing is that cash is directly related to inventory. Too much inventory, not enough cash. Too much cash, not enough inventory. How do you find the balance?

Let’s be honest. Most of us don’t have too much cash and too little inventory. We’re just not that smart:-) So start with this simple thought. If cash is tight, if you’re struggling to pay the bills, you probably have too much inventory. More importantly, you probably have too much bad inventory – what we call the dogs. And if these dogs won’t hunt, you gotta set ’em loose.

How can you tell if a dog won’t hunt? Some dogs are easy to spot. If you haven’t even sold half of your inventory over the course of a year, it’s woofing big time. Some dogs are harder to spot. A simple, very important mathematical equation called Gross Margin Return On Investment (GMROI) does the trick. GMROI basically is a measurement of how much money you make on the money you invest in your inventory. The formula is this:

GMROI = Gross Profit divided by Average Inventory at Cost

And Gross Profit is simply Sales x Profit Margin.

So you really only need three numbers to figure out your GMROI
1) Gross Sales
2) Profit Margin
3) Average Inventory at Cost.

I use a monthly average inventory and yearly sales, but you can choose to measure however you want. Also, you can use this formula on a single item, on a group of items, on a whole department or even on the whole store. I track GMROI very carefully for the whole store, each department, and each vendor, but I use it on individual items when a product I really like doesn’t seem to be pulling it’s weight.

Here’s a hypothetical situation to put it into numbers:

Gross Sales = $5,000/year
Profit Margin = 40%
Gross Profit = $2,000 ($5,000 x 40%)
Average Inventory = $1,200/month
GMROI = 167% ($2,000/$1,200)

That means for every dollar I invested in this product over the course of a year, I made $1.67. If your GMROI falls below 100% then you are losing money on that product.

Calculate the GMROI for your store, for each department, and then for each product you don’t think is selling well. Compare the product GMROI to the department and overall store. You’ll have a quick idea of how well that product stacks up and if it’s helping or hurting your cash flow.

If your GMROI is below 100% it’s a no-brainer. If it’s between 100-150%, you’ve got some serious work to do. Depending on your industry you may need a GMROI well over 200% to be successful. Only you can really know what you need to succeed. Fortunately, there are only three variables to manipulate.
1) Sales – sell more product and your GMROI rises
2) Profit Margin – raise your prices while selling the same dollars and your GMROI rises
3) Average Inventory – keep a smaller, tighter inventory and your GMROI rises.

Take the example above and play with the numbers. One by one, raise the sales, raise the profit margin and lower the inventory. See how a 10% shift in any one of those numbers affects your GMROI. You’ll find that a 10% decrease in inventory has the highest impact and thus the best results for your cash flow. And how do you cut the inventory? By getting rid of the dogs. They aren’t helping sales anyway.

Just do what I do. Identify them, pull them from the floor, mark them half off and have a big sale once or twice a year (not too often, you don’t want to train your customers to wait for the next sale). Invite all your transactional shoppers in for the big event and watch those puppies fly out the door. Turn the dogs into cash and invest that cash in the products that give you the best GMROI.

Yeah, you gotta do some math. But believe me, it’s worth it!

-Phil

Optimism in Toyland

The toy industry shrank for the second year in a row. Sales nationally were down over 2% compared to 2007, which was down from 2006. The new Consumer Product Safety Improvement Act (CPSIA) has the whole industry in turmoil trying to figure out how to prove their already safe toys are still safe. Half of the factories in China that make toys have closed, causing toymakers to scramble to find capacity. The housing market, the credit market, the auto market are all in crisis. The media is calling this the worst economy since the Great Depression.

Yet the mood at the International Toy Fair just held in NYC was quietly confident. All of the retailers with whom I spoke had a decent 4th quarter and strong January. There were even a few newbies at Toy Fair with plans to open up new toy stores in this economy. Their friends must think they are nuts!

So what’s happening in Toyland that seems to make these businesses immune to the doom and gloom around us?

To a person, it was the knowledge that they control their own destiny. None of these businesses has conceded any control to the whims of Wall Street, to the lords of the layoffs, to the gods of government bailouts. They don’t bemoan the banks, throw missives at Mother Nature, or hunker down in a corner waiting for everything to blow over.

Every retailer with whom I spoke talked about how they were working hard to market their business, improve their efficiencies, and thrill their customers. Every retailer spoke about finding the best products, offering the most convenient services, getting the most out of every opportunity.

Yes, each and every toy store owner I saw at Toy Fair was optimistic that 2009 would be profitable – even more profitable than ’08, ’07 or ’06.

Maybe the optimism comes from selling toys for a living. Maybe it’s because the stores that didn’t feel optimistic didn’t go to Toy Fair.

Or maybe, just maybe, it’s because the stores who control what they can control and don’t worry about what they cannot, always seem to do better, regardless of the economy.

Are you one of those stores?

-Phil

Are You Riding the Mommy Tsunami?

There is a tidal wave of babies being born. A group large enough to rival the heralded Baby Boomers. And the moms having these babies are the most educated, wealthiest, most connected group of moms in history.

They have a name for this group – The Mommy Tsunami.

When the Baby Boomers had their kids it was called the Echo Boom. Other names like Gen X and Gen Y have been used to describe the echo boom. Whatever you choose to call them, this group is now having babies.

But with one difference.

This group is waiting until later in life to have kids. This new mom is typically about 30 years old, college educated, and has invested a few years in her career before stepping out to start a family.

She has the power of the Internet in her purse, a camera on her phone, and an account with YouTube.

She grew up in an over-saturated advertising market so she is cynical to all forms of marketing. She ignores the hype. She pooh-poohs the over-the-top claims. She calls out anything that she knows is a fake. She doesn’t bite when you say “biggest sale ever!!” because she knows you’ve got another sale lined up two weeks later. She knows what the fine print says. She knows that no matter what you say, everything has a downside.

And if you cross her, she’ll have a video on YouTube within the hour and ten thousand of her closest friends will see it by nightfall. She’ll destroy you with the power of a tidal wave.

Yet, the Mommy Tsunami has more dollars to spend than any group of moms in history.

How do you reach this powerful, cynical, knowledgeable consumer?

The answer is quite simple – honesty.

Product knowledge used to be your advantage. But with the Internet at her fingertips she probably knows almost as much as you do about what you sell. You can’t trick her into thinking this is the only option out there. She knows what the competitors have. She researched it last night in her pajamas. She knows what features every product in the category offers, and has probably read a half dozen reviews to know which features actually work.

Now she needs someone to put that knowledge into context to show her how each feature fits into her life (or doesn’t fit). She needs someone willing to be up front about the downside she knows is inherent in everything. She needs someone to tell her which features will actually benefit her in her lifestyle and which ones the company threw on just to jack up the price. She needs a salesperson to show her the benefits and the shortcomings.

Total, unabashed, show-all-the-blemishes honesty.

She needs someone willing to listen to and fulfill her needs, not shoehorn her into something that suits your needs. She is thrilled when you tell her why not to buy something. She is thrilled when you go out of your way to get what she wants instead of just what you have. She is thrilled when she knows you are looking out for her best interest. She is thrilled, mainly because it happens so rarely.

She knows that businesses lie. Every great offer comes with a fast-talking disclaimer. Everything is “subject to change” and never in her favor. Every great price has a hidden fee. In this ever-increasing self-serve world, everything is a take-it-or-leave-it proposition. And too many times she is leaving it.

Honesty means sometimes saying, “I don’t know,” followed by, “Let me find out.” Honesty means sometimes saying, “I can’t help you here,” followed by, “But let me call someone who can.” Honesty means being transparent in your ads, your products, your sales pitch, and your closing. Honesty means being transparent in all of your business practices, in what you stand for, in what you believe.

The Mommy Tsunami has the power of a Tidal Wave and can crush you just as fast. But just ask one of those crazy big wave surfers in Hawaii. They’ll tell you the thrill of riding the wave just once outweighs the risk every time.

Happy Surfing!

-Phil

Wal-Mart Got it Right

In this dismal economy Wal-Mart keeps racking up sales gains. Many people are quick to point to the slumping economy as the reason Wal-Mart is doing well. Lost your income? Shop at Wal-Mart.

But there’s more to it.

In 2007 the economy was already starting to slide, yet Wal-Mart didn’t fare so well. In 2007 Wal-Mart rolled out their “high fashion – low prices” campaign. In an effort to compete with Target’s “cheap chic”, Wal-Mart tried to upscale their offerings. The result? Abject failure. No traction whatsoever.

Why did something that worked so well for Target fail so miserably for Wal-Mart? Core values.

Target’s core values from day one have been to offer a step-up from the K-Mart/Wal-Mart fare. They have cultivated the image through store design, product selection and advertising. They have built their reputation and core customers on this premise.

At the same time, Wal-Mart’s core values have been to offer really, really cheap stuff. They have cultivated that image and their core customers over many years. Their core customers shop at Wal-Mart for one reason – really, really cheap stuff, not high fashion. So when Wal-Mart deviated from their core values, they alienated their core customers. And at the same time they were unable to shift customers loyal to Target.

But in 2008 they got it right. Wal-Mart went back to their core values and focused on what they do best – really, really cheap stuff. Yes, the economy helped. No, it wasn’t the only reason. How do we know? Because some other stores also did well in this economy, and not by offering really, really cheap stuff.

Independent stores have fared far better in this economy than their chain and department store counterparts. And the best performing independent stores did it by being true to their core values. They didn’t go after the low price market. They offered great customer service, or expert product knowledge, or high-quality merchandise, or all of the above. They made sure that their core customers’ expectations were met or exceeded. They didn’t leave their core for a grab at someone else’s pie. They stayed true to who they were.

Do you know what are your core values? Do you know who are your core customers and why they shop with you? The best stores know this and are constantly working to make sure every part of their business aligns with these values.

Our values are Fun, Helpfulness, Education, and Nostalgia. It isn’t about the products as much as whether those products are consistent with our values. It isn’t about the services, but whether those services are consistent with our values.

When you know who you are, the business model gets easier. When you stay true to your core, you create loyalty. And in this economy, when loyalty is most fragile, you need to hold onto as many customers as you can.

Everyone knows the old adage that it is cheaper to keep a customer than find a customer. Now, more than ever, that statement is showing itself to be true. Keep your core customers by sticking to your core values. Finally, a lesson from Wal-Mart we can all put into practice.

-Phil

Keeping Fit the Triathlon Way

Jeff Beagle talked me into doing a triathlon a few years ago without saying a thing.

Jeff is a personal trainer who had a client larger than me that he was training for the Clarklake Triathlon, a 0.5 mile swim, 14 mile bike, 4 mile run event. I figured if that guy could do it, so could I, even though I hadn’t run 4 miles collectively in the past 8 years.

I love to swim. I like biking. But running is my Achilles Heel figuratively and literally.

In the two months prior to the event I swam daily, biked a few times a week and ran when I could. Sure enough, on the day of the event I finished 17th… …in the swim portion. Overall I came in 396th out of 400 who completed the race. I was dead last in the 4 mile run. Two little old ladies watching the race passed me with their lawn chairs in hand I was so slow.

But I finished.

Talking to Beagle afterwards about training for the following year, he gave me great advice. “Phil, I know swimming is your favorite, but put the swimming away and spend all your energy on running. A 10% improvement in your running will have far greater impact than a 10% improvement on your swim.”

How true, how true.

Business owners can learn a lesson from this.

Like a triathlon, we have three elements of our business in which we must perform: Product, Finances, and Marketing. The best businesses are strong in all three. Most businesses are strong in only one or two. And most business owners are only good at one or two, and usually only passionate about one of those three. Thus we spend our time and energy on our passion, improving only slightly, instead of focusing on the weakest, least fun aspect where the most room for improvement lies.

As you make your plans for 2009, do your business a favor. Evaluate which part of your business needs the most help. (Here’s a hint. It’s probably the part you like the least.) Then put all of your focus on improving that area.

A 10% improvement in my swim would have moved me up to 394th. A 10% improvement in the run gets me to 356th.

If marketing is your weakness, sign up for Roy William’s Monday Morning Memo and go to the bookstore and buy his “Wizard of Ads” trilogy. You’ll learn more about advertising than you can imagine and a few things that will help your business in other ways, too.

If finances are your weakness, set up an appointment with your accountant (get one if you don’t have one already) and start going over the numbers. You can’t manage what you don’t measure and you can’t measure what you don’t know. Have your accountant teach you or hire a business financial coach. A good coach will pay for himself or herself many ways over.

Chances are, the product is your passion. That’s how most people get into business. You know your products. You know what’s selling. But do your employees? Is your training program getting the results you want? Also, do you have a good inventory management system? Do you have a solid Open to Buy program that keeps your inventory in line and cash flow moving?

Think like a triathlete. Work on your weakness. That’s where the big results take place.

The following year I moved up to 367th. Time to work on the bike:-)

-Phil

Blow Up Your TV, Throw Away Your Papers!

It’s time to follow the sage advice of one of my favorite folk singer/songwriters when John Prine told us all to…

Blow up your TV/Throw away your papers/Move to the country/Build you a home…

No, I’m not moving to the country, but I’m getting close to canceling cable TV and my daily read of the local newspaper.

After ten hours stuck in an airport with CNN on the TV, I’ve had enough bad news to last the year (and it’s only January!)

Over and over I heard about Boeing, Dell, AOL and Starbucks layoffs, talking head after talking head wrangle over the pork spending in the bailout bill, all of the cities shutdown by ice storms, and even a lament for poor Tiger Woods that he might lose his #1 ranking in golf because of the long layoff due to his injury.

It was one bad story after another. I even tried sitting facing the other direction. There was a TV on that wall, too. I finally found a spot with a pillar and a baby stroller to shield me from the negativity.

If I listened or read any more bad news, I would wonder how anyone could survive.

Then I got to Florida. Change of scenery, change of perspective.

I’m speaking at the IDEX Show, a trade show for the collectible doll & plush industry. This is a market, that by all signs, should be hard-pressed in these economic times – expensive, non-essential items for adults. Yet, at the buyer’s reception last night I asked for a show of hands of how many businesses had growth last year. Half the hands went up. Throughout the evening I met three people who were planning to open stores this year.

Obviously none of them had read the news or watched CNN.

And neither should you.

Henry Ford said, “Whether you think you can or you can’t, you are right.”

Avoid those negative thoughts and start working on a positive attitude. That’s the first step to being successful in 2009. And you can start by turning off the TV.

Over the next couple weeks I’ll tell you what I told that crowd of buyers last night. There are some trends we are following at Toy House with great interest, and I have some strategies for taking full advantage of them.

-Phil

Customer Policies are for Customers

I’m sitting in the new North Terminal at Detroit Metro Airport. My AirTran flight has been delayed 8 hours because the plane taking me to Florida couldn’t leave Ohio.

Sitting in the breast pocket of my sport coat is a $10 gift certificate for food in the terminal, just enough to offset the $7.95 I paid for 24 hours of WiFi service.

Sure, the food voucher is nice. I’m not sure if the $25 travel voucher that came with it is very enticing to future flights. But the real question is this…

Are they really appeasing customers in a way that makes customers believe they care or is there something more or different they could do?

Because of the delay I’ve already made a number of itinerary changes including missing out on a planned dinner with friends. $10 worth of free food doesn’t replace 2 hours with friends I haven’t seen in months. And money for food was the least of my worries. I budgeted far more than that for tonight’s dinner.

As for me, I would rather have free WiFi than a food voucher. $7.95 for 24 hours feels like a ripoff. I might be the only one who feels this way, but from where I sit there are 6 laptops open nearby, none with one of those cellphone type attachments.

Sure, food is the easy option for the airline, so easy they have the forms pre-printed and stacked underneath the counter. But doing what the customer wants is always the best option.

Are your policies designed so that the customer gets what she wants? Do you even ask? Or do you have a rote response for everything so preplanned that you don’t even care what the customer thinks?

It’s something worth pondering.

I’ve got 6.5 more hours till takeoff, I think I’ll ponder a while:-)

-Phil

Are You Real Real or Just Fake Real?

I watched an interesting video this morning. Great way to start the day. It’s from the TED Conference. For those of you that don’t know TED, TED is a conference of really smart people, way smarter than me, doing really cool, mind-blowing presentations, usually 15 minutes or less.

Joseph Pine did a presentation on “what consumers want” that was quite eye-opening. He led us through the evolution of the marketplace from commodities to goods to services to experiences.

Then he blew me away with a simple graph about authenticity. Is your business authentic? That’s what customers really want – authentic experiences. Of course, there are degrees to authenticity. Fake Fake, Fake Real, Real Fake, and Real Real.

Find out what you and your business are. Check out the video at:
http://www.ted.com/index.php/talks/joseph_pine_on_what_consumers_want.html

But be careful, you can get hooked on TED videos. I know I am.

Cheers!

-Phil

How Do You Stay Motivated in Tough Times?

I am on the Retail Advisory Board for a juvenile industry trade magazine. Each month we answer a question as a regular feature in the magazine.

The question for February was, “During these tough times, how are you staying motivated and how do you share that motivation with your staff?”

What?! Stay motivated?!

In tough times you either stay motivated or close up shop. There really isn’t anything in between. In fact, you don’t need tough times for this adage to work. If you aren’t motivated, you shouldn’t be in business, whether the economy is good or bad.

But I can see where this question originates. We have been bombarded with negative story after negative story from the credit crisis to the auto industry to the Chapter 11’s to the so-called National Bankruptcy Day on Feb. 9, 2009 when the CPSIA law goes into effect.

That’s a lot of bad news and can be a big drain on anyone’s psyche.

But if you’re in business and want to stay in business, motivation is in ample supply in a tough economy. More so than in a good economy.

When times are good, we become complacent. So what if we screw up with a customer here or there? Another customer is waiting in line right behind her.

When times are tough, we know we have to maximize every single customer. We have to be at the top of our game every single time. It’s like being up to bat with two outs and the bases loaded in the bottom of the ninth with your team down by one, or standing at the free throw line with 8.6 seconds left and your team up by one. Concentration is at a peak. Every muscle is locked into the task at hand. You know there is no room for error. Motivation? When the game is on the line, motivation is sky high.

The same is true for business. When times are tough and your very existence relies on you doing your job well, you don’t have to search for motivation, it finds you.

Then again, some stores don’t get this. You’ve probably been to one. The sales clerk barely looks up from his station to acknowledge your presence. If he says anything at all, it’s to gripe about how slow is business. He blames it on the weather, the economy, the media.

That is the difference between the successful stores and the stores just hanging on. Successful stores look at the tough times as opportunities. There is more market share to be won during tough times than in good times.

Customers who are tighter with their money are shopping around more to find better shopping opportunities. And it’s not just about price. They’re looking for stores who best meet their needs, whether it is advice, selection or convenience.

The best stores recognize that tough times are when you make your move, when you go after disgruntled customers, when you expand your selection, your hours, your services to meet their needs. Tough times are when you ratchet up your training programs to keep your staff on their toes and in tip top shape. Tough times are when you differentiate yourself from the crowd by “risking more than others think is safe, dreaming more than others think is practical, and expecting more than others think is possible.” Tough times are when you pull out all the stops to make your business better – not just better than the competition, but better than your own standards, better than the highest standards in your industry. Tough times are when you sharpen the ad campaigns, not throttle them back. Tough times are when you work a little harder, a little longer, a little smarter.

The stores that do best during tough times are the stores that embrace the motivation all around them and see the opportunities that are inherent. And when the good times finally arrive, these are the stores that will be standing the tallest.

Tough times are as Darwinian as it gets. The strongest survive. What more motivation do you need?

-Phil