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Geez - Not Sharper Image, Too! Updated

February 21, 2008

It is said that recession is a state of mind - if consumers think the economy is going bad, that becomes a self-fulfilling prophecy. Based on that and my experience, I have developed a theory that once downbeat economic news is mentioned more than once on a news program, the economy is going to head south. These days you can’t turn on a televison or read a print article that doesn’t refer to the "R" word.

The most recent bad news concerned Sharper Image filing for Chapter 11 bankruptcy protection. I know this was not unexpected; still, expected events can be surprising when they actually occur. In another newsletter distributed to our industry by a vendor, the listed recent retail closing; it read like a who’s who of our industry including Naples Patio, Seasonal Concepts, Fortunoff’s, and some Elegant Outdoors.

I am not bringing this up because I believe all of us are in trouble. Instead, I want you to understand what was going on in the background when two things happened to me this week. I sat down with our insurance agent to start of our annual property and liability insurance renewal process. This insurance has never been inexpensive, but after Katrina our premiums doubled and coverage dropped (I had to become self-insuring for 10% of our property value). I was hoping for some relief this year. . .  better I should have hoped pigs would fly! I left that meeting feeling depressed and disappointed.

A few days later, I received the renewal for our hospitalization insurance. For the same coverage as last year, our premium would increase by 37%. My depression and disappointment turned acute! Our hospitalization is non-contributory for our employees. I know, I know, you are thinking we are mad, but I feel it is a vital component of our compensation package. I suppose we could raise salaries and have employees pay for some portion of their hospitalization. But I think some of my people would opt out of the insurance to save money and realize a raise. The next time they got sick, they wouldn’t be able to see a doctor and it would be a lose/lose situation for us all.

I always fester and stew when I am faced with major increases in fixed expenses. I would worry less if I knew what other retailers in our industry were spending. When I was in business school, "Value Line" was a tool that did this for me. "Value Line" studied the income/expense reports of companies, averaged them, and printed the averages by industry. If I wanted to see what was the average percent of income grocery stores were paying for rent, I could find out.

Several years ago, a company attempted to do this for casual retailers. Retailers paid a fee to participate and meet several times a year to exchange information just like this. I was asked to join, but the membership fees and number of meetings I had to attend every year made the project more expensive than I thought it was worth.  I don’t know if that is still around.

I think this should be a resource someone in our industry provides for free.  Perhaps CFR or one of our trade magazines that already have systems in place to do yearly surveys about what is selling and industry trends. Regardless of who does it or whether it gets done or not, I would like the information; so, are you willing to let me and the readers of this blog know what percent of gross sales are the following expenses:

1. Rent (or mortgage payment)?
2. Hospitalization Insurance?
3. Property and Liability Insurance?
4. Merchandise Costs?
5. Advertising?

Unless you specify otherwise, I will put these figures in a future blog without referring to your store by name.

If you are unwilling to share these figures with me, a possible competitor, but still feel this is a worthwhile study, let me know. Your input could cause this to happen

Yours in confused retailing, Bruce

Update: Today, HFN reported that Lillian Vernon has filed for Chapter 11 Bankruptcy protection. Boy, I remember my mother getting and ordering from this catalog in the 60’s. Is nothing sacred anymore?