follow us

Two Parables

January 19, 2009

In a recent newsletter, a major vendor talked about one of his retailers whose sales were down 50% last year. The retailer was doing everything possible to stay in business in this year; including, cutting back on preseason orders and inventory based on last year’s sales. In his newsletter, the vendor warned that the retailer would regret these decisions if business improved this year. If early buy orders were cut, the vendor, who is an importer, would have to cut his warehouse program. Thus, the retailer would have more stock-out situations and he wouldn’t be able to depend on the vendor to back him up with goods out of his warehouse. The advice from the vendor was to plan for a so-so year but not for one as bad as the retailer was expecting.

A few days after reading this newsletter, a rep and I were talking about the economy (do we talk about anything else these days?) and he told me this story. A man came to this country without any money, no family, and little education. The only thing he had was a willingness to work; and, because of that, he was able to find a job, start a family, and save a little money. He used that money to open a curbside hot dog stand. The hot dog stand became prosperous and he was able to send his son to college.

One day, several years after his son had graduated from college, they were talking about business. The son asked his dad how the hot dog stand was doing. As it turned out, the hot dog stand had been growing leaps and bounds for the past four years. The son looked at his father incredulously because the country had been in a deep recession during those four years. He questioned his father and then explained to the dad, who couldn’t read the newspaper, what a recession was and how it had affected every business in the country.

After his son left, the father began to worry. He knew his son was well educated and if he said there was a recession going on he had better do something about it. He cut back on his expenses by buying inferior quality products. He also cut back on the quantity of hot dogs and buns he purchased. Because of these decisions his regular customers, who had enjoyed the gourmet quality of his hot dogs and quick service, started looking elsewhere for lunch. Soon his business was in the tank. But the father was very proud because his son was right about the recession.

In their own ways, the vendor and the rep were trying to address the very root of any recession: buyers’ lack of confidence. My immediate reaction to the newsletter and the story was that the vendor and the rep were trying to convince me to take risks so they wouldn’t have to. The vendor was pushing retailers to increase the size of the early buys and inventory commitments. But the vendor wasn’t willing to take the same risk by fully stocking his warehouse. The rep was trying to convince me that just because other retailers had succumbed to the recession didn’t mean I had to. I suppose if my business hadn’t suffered a downturn in sales last year I would have been more receptive.

But after thinking about it, there is some merit to what they both were trying to do. True, business has been, how shall I say it, less than optimal. But I am not in the position that led Circuit City and Linens and Things to bankruptcy. It would be nice to be at the sales levels of the last three halcyon years. But I didn’t expand and take on the burden of unreasonable debt during those high-flying years. Unlike the father in the story, I do follow the news and have developed a realistic idea of what business will be like this year. I have cut back on my early buys but mostly on items or vendors that weren’t selling well during the best of times.

Optimism is a hard feeling to come by right now. Even when I do feel more optimistic, it is hard to keep it going as I deal with the day-to-day needs of my business. But optimism is what we need right now. And, no, I am not putting on blinders to what is going on. Instead, I am paying more attention to any signs that might be positive. The stock market has been more stable in the past 4 weeks that in the past four months. We have a new president coming in who should have a new economic recovery plan in place by mid February. Mortgage rates are at an all time low leaving people with more money to spend. Even gas is half of what it was six months ago. Finally, the best news is the pent up  demand I have experienced at my store on weekends this month when the weather was good.

Keep up hope, be realistic, make your partnerships with vendors stronger, and most of all, don’t let anyone talk you into doing something you don’t feel is in your best interests. Pessimism is a paralytic; don’t let it prevent you from running your business.

Yours in confused retailing, Bruce