At this week’s informative Zoom seminar sponsored by Management One, the Management One team presented some key basics for reducing expenses in an era of declining sales. Happily, the presentation was more upbeat than depressing, emphasizing throughout the hour that great companies thrive on crisis and that attitude is all-important. Some retailers who are getting creative and making the business ‘fun’ (not exactly sure how ‘fun’ is defined…) are defying the odds, despite the fact that, given the pandemic, industry experts predict independent store volume to decline by about half through mid-2021. (Others project a two- to three-year recovery.)
The basic rules for retailers who are reassessing their business: know your assets; cut expenses; eliminate categories/brands/products that are not profitable; focus on high-value activities and explore new ways of marketing.
In assessing your assets, consider your customers, your employees, your location, your product, and—most important–your purpose/mission. (e.g. Management One defines its mission as providing financial security for their clients; MR defines its mission as educating, entertaining, and inspiring menswear merchants and manufacturers.) An important tip: mission statements must be updated regularly to remain relevant.
Cutting expenses is critical in that sales volume is unlikely to increase or even stabilize. According to Management One’s data, based on their extensive client list, payroll expenses average 7 to 10 percent of total retail expenses, rent is in the 6-10 percent range and inventory is 48-51 percent. By cutting back inventory and improving turn, inventory expenses could run as low as 30 percent. The same goal can be attained by taking higher markups, best done with exclusive (or at least less widely distributed) product.
Rent expenses can and should be negotiated at this time and, if possible, tied to a percentage of sales. Moving forward, Management One suggests, stores should try to keep rent as a variable expense.
As for payroll, retailers should make it performance-based and keep it under 10 percent: anything higher means stores are subsidizing non-productivity. Also, if sellers are not performing up to expectations, why not look at changing the training process?
When it comes to inventory planning, three rules apply: 1)Build on your strengths; 2)You can’t be everything to everyone; and 3)Hot items find a way! Be sure to analyze your sales by brand/category/size/color/basics vs fashion. It’s not enough to know, for example, that jeans are selling if you don’t know which jeans.
Another suggestion: go back to those vendors who might not have wanted to sell you last year. With 15,000 stores projected to close in 2020, they might have changed their minds.
A final suggestion: Stand outside your store and picture starting your business over from scratch: what would you do differently? Now go out and do it! Reinvent everything.