Open up, retailers, it’s time to take our medicine
April 1, 2008-- Casual Living,
As an industry, we might have lost sight of what is important. More and more retailers are filing bankruptcy; others are in trouble. In recent years, several manufacturers have closed shop. In an industry this small and specialized, we need to all work together to maintain our business health.
First of all, I see many companies place priorities on the wrong thing. Business manufacturers and retailers alike seem to think bigger is better. In recent years, everyone has become obsessed with volume of business and the size of their stores. Let’s go back to Business Basics 101: It is cash flow and inventory turns that dictate the health of your business, not volume.
If one is running their business with a lack of cash flow and bad turns, then volume only makes you go out of business faster. If your inventory is turning and you are keeping expenses in check, then good cash flow will be a natural result.
Currently, our industry seems analogous to the sub-prime mortgage industry. A lot of business was being done, but it was bad business. Money was free flowing and there were incredibly high volumes, which gave the illusion of health but the reality is, that money was being extended to people who had no way of paying when debt came due. As a result of this fiscal irresponsibility and the belief that the bubble would never burst, the mortgage industry may be heading us into reduced financial markets throughout the world, and a potential recession.
This is a simplistic model, but can we say it is not a version of what is happening in our own industry? Who is to blame? Is it the homeowner who bought more than they could afford, or the subprime lender who made borrowing too easy? The same question can be asked for manufacturers and retailers. In any relationship, when something goes bad, both parties are at least somewhat to blame.
Financial health check
How do we regain financial health in our industry? A simple answer is that we need to reestablish our priorities as business people.
Retailers: If you have not done it for a while, re-do your business plan. Do you know what your inventory levels should be? Are you keeping track of your outgoing cash and scheduling your payments like you schedule deliveries? When you buy, you need to be prepared to pay. I think the lure of cheaper products and larger margins entice us, and we forget that keeping inventory flowing is much more important than storing it and making 5% higher margins. We lose at least 10% of our inventory cost each year, so if we are not flipping the merchandise we are forgoing the added profit. Calculate the cost of keeping your money tied up versus the very generous terms our U.S. manufacturers give us. If we are not careful as an industry, supporting container programs will lead to us losing those terms and U.S. manufacturers will have to redefine how they finance us. Pay your vendors. Doing good business with those that support you will lead to your health, their health and the health of our industry.
Manufacturers: Don’t do business for business sake. There is good business and bad. We should all be doing good business when we know with some dealers we are rolling the dice. If a retail customer walks in with a sign saying, “We are going to cost you money,” we would not do business with them. While everyone is not so conveniently packaged, there are situations in which we know going in that we are in a bad relationship. When I read the list of creditors at the top of every bankruptcy in Casual Living, why is the same list of players always at the top? As a retailer, it makes me mad to think I am helping fund some of that debt. Volume is worthless if there are no funds to cover it.
Communication is also essential. Manufacturers should not be afraid to ask the questions, and retailers should not be scared to communicate honestly with their suppliers.
We have beautiful and desirable products to offer customers who love the concept of outdoor living and of vacationing at home in an ever more complex world. Good business is out there for those who want to partake, we just have to remember what is necessary to be healthy and strong.
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