It has been estimated that up to 30% of retailers won’t make it through this recession in business. Almost every one of those failing retailers will have one characteristic in common. Prior to going out of business they will cut expenses. Some will cut more and faster than others but most, if not all of them, will cut expenses.

You might argue that is not a useful insight since those retailers that stay in business will also cut expenses. May I remind you of the story of the hot air balloonist who was lost and shouted down to someone on the ground asking where he was. The groundling shouted, “you are 150 feet in the air in a hot air balloon.” The balloonist replies, “you must be a consultant, your answer is correct and useless!” There is a big difference, however, between survivors and failures.

The survivors will cut expenses carefully according to a plan. That plan will include ways to replace the asset or service in more effective, efficient and productive ways. The failures will tend to cut expenses along with services and products. When you cut expenses and don’t improve effectiveness or efficiency, you just shrink your business but do not put it further ahead.

For example, a store that cuts sales staff from 5 people to 3 people can save two salaries. If that lower staffing level means that 2 people every hour at your peak times are not helped and sales drop by 5 times the saving, the cut in expenses was not a prudent idea. The same can be said for a store that eliminates a delivery van but at the same time, cuts out deliveries. If the sales drop because of the lower service level, the cut in expenses was probably not a good idea.

Retail is a business where you grow a client base over time based on service and having the right product available. When you cut either one, you not only lose the sale but the customer as well. That compound effect of the cut in expenses AND service or product will drive the business to the bankruptcy court.

Another example is the investment in inventory planning. An accurate inventory plan based on future market conditions and demand is crucial to success of a retail business. When the market tightens, a retailer does not have room to make mistakes. Although retail is about taking risks, the level of risk must be scaled back in hard times but that does not necessarily mean cutting expenses. Every decision carries a level of risk and our current economic climate is far less forgiving than what many had grown accustomed to. Navigating the current recession necessitates having the right information, analysis and conclusions. Success, in short, hinges upon strong forcasting ability.

Seventy percent of retailers will make it through this recession and those that do will be stronger and more profitable than ever before. Now is the time to upgrade your team with a stronger staff, better information and a decision making process that gives the right decisions more than ever before.