If there is one word that I hear over and over again since the “great recession” started, it is VALUE. Value was always important but not nearly as much as when trying to convince frugal, crafty shoppers to invest in your product.  I do not use the word “invest” lightly here since value implies a return expected on that investment. As a retailer, you are responsible for establishing the value proposition as part of your brand image. Very possibly your brand image has revolved around what is new in fashion.  Ask yourself, “Is that still working for me now?”

For those of you who answered that question with a resounding yes, STOP. No need to read further.  Find a reliable host or blogging account and begin your own blog to share your wisdom.  Please include a link to this blog as well!  For those of you whose answer was somewhat shy of shouting out YES, read on.

We have had many recessions before this one and there have been some lessons learned in those. This blog will serve the purpose to make you think in some different ways and consider some new approaches for your business.  None of these are proven to work every time, in every case or in isolation.  Finding the right mix for your store is your challenge. Just keep in mind that if what you are doing now is NOT working, you must search for alternatives that will work.

One observation is that people are still searching to fill their dreams but their dreams become more realistic and practical. Instead of a new dress, they might buy a new sash to change the look. Instead of a new pair of shoes for work and one for the party afterwards, they might look for a pair that can fill both purposes. Fashions tend to change at a slower pace during a recession which means that clients may be able to wear an item for a longer length of time and that means that quality construction is more important. Even if that quality costs a little more, the value is there. Value might come from being closer and more convenient which saves time, gas, wear and tear in addition to hassle.  Value might come from promotions where a purchase ALSO buys admission to an event. (Remember, people have stepped their entertainment down a notch so an added event becomes value added!)  Certainly markdowns add to the value but at great expense to the retailer and also the brand image for upscale retailers. Some, like Louis Vuitton, have determined that their value comes by refusing to cut price thus protecting the exclusivity to only those people who feel they have not been tainted by the great recession. The point here is that every retailer should be re-evaluating his or her business to determine how to offer more value, promote that value proposition and establish that value proposition into the brand image.

Being from Cleveland, I always pay attention to Allstate commercials. The reason is that they star Dennis Haysbert who also played Pedro Cerrano in “Major League”, the classic fiction movie about the Cleveland Indians winning the World Series in my lifetime. (For non-Clevelanders, he also played president Palmer on “24”.)  One recent commercial reminds viewers that Allstate has been in business for 78 years and has seen no less than 12 recessions. The observation is that “after the fears subside, a funny thing happens: People start enjoying the small things in life. It’s back to basics and the basics are good.”  This whole recession is, in great part, about getting back to basics. Your job as a retailer is to define how you fit into the basic lifestyle of every prospective customer and your target audience.

And How the Pub Effect Fits in the Picture

As consultants it is important for us to stay a step ahead of the game. We spend a lot of time reviewing the facts and trying to use them to project the future. By projecting the right future, we can advise our clients to take actions that maximize their results. We are in a period of flux that is greater than we have seen in our memory. Sorting it out and making sense of it is not easy nor is it a science but I wanted to share my analysis. I welcome comments and other viewpoints in the interest of identifying what will happen long before it does.

The First Domino to Fall

We all know about the housing bubble that was created by easy credit and subprime mortgages. I believe that was the first domino to fall in a bloated economy. Our economy is based on growth and the concept of supply being less than demand. When that happens companies invest in new capacity so factories are making new machines and money is flowing from investors to creditors to companies and everyone is happy. When people began the process of defaulting on their loans for homes and the banks foreclosed, there was an increase in the number of houses available for sale. That increase in supply created a drop in price since supply exceeded demand. The drop in home prices cut into the value of the biggest asset most Americans own. When that happened, they no longer felt comfortable buying as much on credit and building a level of debt that they did not have assets to cover. When they cut back on buying all of a sudden we had the same level of supply in the manufacturing and distribution pipeline but the demand dwindled. At that point, no company would invest in new capacity so the companies that make the machines, build the warehouses and so forth cut back. I could go on about how this trickles down throughout the economy but I think you get the picture. Every conceivable industry was stuck with last year’s level of inventory and a new lower level of demand.

The Special Case of Retail

Retail is a special case of this same phenomena. The reason it is special is that every season represents a complete cycle in retail. Retailers depend on sales forecasts and accurate merchandise planning to predict the level of demand for each classification. Merchandise planning is not a trivial matter nor a simple task. When we determine the OTB (Open To Buy budget) for a retail store, we include variables to indicate the economy, trends, bellwether stores, distance from a coast, latitude, local business indicators and more. This is all in addition to the review of sales trends, markdowns and LY (last year). What happened this year to big box stores and chains is that they either did not factor in the right information for their plans or they did not believe the outcome. They bought based more on LY than on current indicators. When the fall and holiday inventory hit the stores, they then realized the demand was gone. They quickly took huge markdowns to try to adjust for the oversupply. The early indicators are that they are taking early markdowns on new spring goods as well which indicates that they did not learn or plan well and need to adjust again. Thankfully our stores, the independent retailers, came out of holiday in great shape with inventory in line for the new reality.

Department and Big Box Stores

These companies will be hard pressed to survive without the help of bankruptcy courts or favorable infusions of cash. They have huge mortgages and overhead to cover and they cannot do that with merchandise at 70% off. They will pass along some of the losses to the vendors from whom they buy which will force many of them into bankruptcy as well. I believe that the reduced level of demand will be adjusted primarily from this sector. They need a certain level of revenue to survive and if their merchandise plans indicate that level of demand does not exist, they buy that level of merchandise anyway. This is due to their top-down planning that starts with profit and revenue as the goal.

Independent Retail

This new environment bodes well for the specialty retailer who has good planning on which to base his buying. We use a bottom-up plan which means the most important driver of the plan is demand. In a changing and turbulent sea of retail, predicting demand will lead to optimal results and the bottom-up plan is the way to go. Some of the department stores are beginning to get into bottom-up planning but with 19 years of experience, we feel we are way ahead of the game.

The other advantage that the specialty retailer has is what I call the “Pub Effect”. This is where the local shop is the hub of a community. The retailer provides much more than merchandise. This is a place where everybody knows your name and you are just as likely to stop in to say hello as well as to buy. CRM (customer relationship marketing) has been around for a while but we are leading our retail clients to a new level of connection, service and relationships. Event planning will become a key function in the store and the larger stores will hire a dedicated event manager to keep the store exciting! This is an advantage that is not only more important in this economy and current situation, it is one the mall, department store or big box store cannot emulate.

The Internet Factor

No discussion of the future of retail can ignore the internet. The internet e-commerce is growing rapidly and offers many advantages. A shopper can evaluate prices across a wide spectrum quickly and efficiently. People are gaining more confidence in ordering merchandise with the advent of PayPal and the ratings of quality vendors on sites. Freight charges may be an issue, however it is negated by the absence of sales tax if the company does not have a location in your state. Watch for states to close this loophole to raise the tax revenue they are losing from the dying department stores and chains! This change will not happen fast enough to save many of the brick and mortar big box locations.

The Mall at All?

The mall is a dying entity. Just as fast as the malls came on the scene in the ‘60s and ‘70s, they will largely depart in the next 10 years. No longer can retailers afford the high rents. Gas prices will creep up again and driving to a mall will be an expense that many will not pay. A mall requires a rising level of demand which is not likely for a few years.

With the rise in internet shopping, there is a decrease in demand for the mall stores. There will always be a need to try on merchandise, see it, feel it and so forth but that level will not be sufficient to support a mall environment. That is why the specialty retailer will prosper.

When the anchor to the mall closes its doors, the mall tenants will require rent abatement to survive the decrease in traffic. The lower rents will not provide capital to pay the debt, utilities, security and maintenance to keep the mall going and many will tumble. Look to malls to be the new community center refitted with a pool, gym, local community college classrooms and other uses beyond retail.

Conclusion

Many economists and retailers have developed a myth that “If I just make it through this season, we will be back to NORMAL.” My view is that “normal” as we knew it is gone forever. A new reality is emerging and the retailers who adjust and adapt the fastest will be the most successful. Much of this analysis is speculation – albeit based on experience and a position to closely witness the market changes and effects. I would appreciate feedback and other thoughts you may have that can result in a more robust analysis and prediction of the direction our future will take.

Chaos, change, bad news, layoffs, dropping sales … the list goes on and on. It may be hard to keep yourself focused on the future and what needs to be done today to make that future successful. Consider for a moment the effect that this chaos has on your staff.

When people are scared, they react in unpredictable ways. Think of the pilot who landed his plane in the Hudson River. The dialogue with the tower shows he was calm, collected and had no trace of fear. Pilots train to handle chaos and trouble in a professional manner. Have you done that with your staff?

Strategy, leadership, management and a professional business culture are important to success. In times like these, it goes beyond important to being essential. Too often, independent businesses have not made the commitment to implement this type of operation in the stores. Leaders have no process to adjust the strategy and then watch those changes propel managers in a new direction. Usually managers begin shouting orders in several directions instead of working with the team to establish a new direction.  Staff members have no culture to rely on or accountability to a set of standards to work toward.  They increase activity level under the umbrella of fear and misdirection.

Instead of motivating the team members to dig deeper and work together to increase performance, they scatter like chickens, running feverishly but not improving the bottom line at all. The importance of teamwork is amplified when the situation is tougher.

Winning@Business™ is a culture and a simple method to devise a relevant strategy, implement the leadership to make the right decisions based on that strategy and the management process to see that the decisions are implemented, measured and successful.  Although a two-year head start on the current economy would be helpful, there are steps a retailer can take to bring the situation under control. The key steps  are:

STRATEGY:  Now more than ever a strategy is important to give the stores direction. Changes are happening so fast that a short-term strategy and a long-term strategy are necessary

LEADERSHIP: When there is chaos, leadership is most critical. In order to focus energies and achieve results, there needs to be direction. This is best achieved by a steering team. Some businesses may have only two people on this team: the consultant and the owner. Other businesses may have four or five key people on the team. Whatever the structure, leadership is vital to reaching success.

MANAGEMENT:  Management is the process of implementing the decisions. Too often either the best salesman, the person who has been with the company longest or the highest ranking relative is chosen to be the manager. That person may not necessarily have the credentials or the skills to be a good leader. Without true management training and guidance, it is difficult to implement the right organization structure, hire the right staff, motivate properly, establish accountability , budget, provide the right compensation, communicate expectations clearly, provide effective feedback  and the list goes on and on. Managing people is not intuitive, user friendly or trivial. It is important and often a lot of profits and potential are lost due to poor or marginal management.

TRAINING: Staff certainly must be motivated and given the right direction   but there is more.  Employees must also be capable to handle the job.  That means that hiring the right people, proper orientation and training as well as an ongoing process for upgrading skills are important as a part of the culture.

Now, as the competition for fewer customers becomes more fierce, your sustainable competitive advantage will be the people who represent your stores.   As always, your two most important assets are your people and your inventory!  Now is the time to step up your focus on both.

Messengers of doom and gloom are dominating the air space and permeating conversations in businesses large and small. They say the economy is reeling and many business owners are in a state of panic. Change is occurring. Management One® has always professed that in order for businesses to flourish, management needs to respond to change by focusing on what you can control and utilizing your assets and resources to their fullest advantage.

True, the changes that are presently taking place are huge and sudden, but that just means that the measures to deal with them need to be well thought out and effective. Now, more than ever, it pays to not be buffeted about by circumstances but to take charge and grapple with the situation and the future with the help of the experts of change, the team of Management One® affiliates.

This situation promises to exist for years and as such, hunkering down to weather the storm won’t work.  You must take definitive action to position your store as the leader for the future.  For example, James Hallman has been sending out positive e-mails and ideas to his clients in addition to the challenges he presents to them at their monthly meetings to stay aggressive. A passage from one of James’s messages makes a poignant point:

“I know that, like me, you feel fortunate that none of our friends, neighbors and countrymen will ever be satisfied with a cave for shelter, an animal hide for clothing and a hunk of raw meat for food. As long as that is true — we will do business.”

Ed Cloeter (Detroit) also relays his years of experience and retail wisdom to his clients with continued messages. He recently relayed a tale to them that he recalled from when the country was undergoing a drastic economic downturn in the past:

A little fellow parked himself on a busy intersection and began selling hot dogs. Sales grew so he ordered more hot dogs and buns. The little man had a son who came home from college for a holiday break. The son was studying for his B.S. in Business. The bright lad saw all that his dad was ordering.

Astounded, he barked, ‘Dad, don’t you know how bad the economy is? You’d better cut back!’

The little old man hung his head and listened to his son. His son was, after all, echoing the gloom and doom of the day. The dad cut back his orders and, sure enough, sales dropped. Occasionally cars would stop but would pull away when they found there were no more hot dogs. The man scaled back more. Soon the man, the cart and the hot dog business were gone from the corner. The son was right.

It’s clear from the simple tale to see that faulty logic can lead to unacceptable conclusions. Instead of panic and retreat, business owners need to remember that there is still a market out there. Those who have the know-how to maintain the connection and the attraction to their business will be able to keep their heads above water. Your store, your customer and your situation may all change but you need the right strategy to succeed with the new dynamic!

The Management One® affiliation of consultants and clients has been sharing ideas and actions that have succeeded in overcoming the recent obstacles. In addition, M1 is armed with valuable knowledge of what is working through its giant network of hundreds of retail clients across the United States, Ireland, England and other countries. Information, motivation and accurate forecasts of the market are key elements to remain in today’s marketplace. Advantages available to M1 clients, such as Margin Buying Service, are a great help in providing an edge to success and even survival. For those who simply try to “ride out the storm”, there will be fallout and many carts and businesses may disappear from the corner.

What is your strategy? Remember — hope is not a strategy. Take control and take action! The strategy and subsequent tactics you employ today may mean the difference of whether you will survive this economic environment or be one of the casualties.

Discuss your situation with your Management One® affiliate. If you are not already a client, contact Management One® today for a no-obligation meeting with an affiliate in your area to see how your business can take action to survive and to thrive: www.management-one.com.