Navigating the Recession, Part 2
Earlier this week, I attended a seminar, Navigating The Recession, presented by Curt Feldman of Shepherd & Goldstein LLP, and Ed Nunes of TD Banknorth. I've had the chance to get to know each of them over the past year or so, and they really did a great job.
The focus of the presentation was on strategies that small businesses must undertake in order to ride out the present storm. Curt's first point was that change is necessary and unavoidable; that there are larger economic forces at work that impact us whether we like it or not. Doing nothing is not an option. Accepting the new reality, being proactive, setting a course and leading your team forward is essential to coming through this period. I couldn't agree more.
He then outlined four essential ingredients for navigating this recession;
- Stabilize the business
- Revise your value proposition
- Modify/change operations
- Cash is King
Stabilizing the business involves things I've been very focused on with my clients as well; aligning costs with revenues, aligning inventory with prudent sales plans, and taking steps to maintain margins, both through negotiating sharper vendor prices and adjusting merchandise assortments to achieve sustainable price points. Revising the value proposition involves clearly understanding what it is that you represent to customers that they value, and reinforcing it. Clearly, customers are very value-focused right now, and are likely to be for a while, so price points must be sharp. But for most small retailers, the value proposition extends far beyond prices or merchandise assortments. For most, the value proposition hinges on a meaningful customer experience and personal interaction. Curt warns against perceived indifference. Put differently, every customer experience and interaction must be infused with passion and sincerity. If you add value to your value proposition, sales will follow.
Curt started his discussion of operation by focusing on inventory management, and for small retailers there isn't a better place to start. Once inventory has been brought into line with the new sales trends, it's essential that you don't turn around and speculate with inventory by increasing stock levels in anticipation of a rebound. Inventories should be increased only after the customer has clearly demonstrated that they're prepared to support those higher levels.
He also touched on the corrosive impact of discounting, both on margins and the value proposition. He introduced a fascinating table on the simple math of discounting. His example: a discount of 10% on 30% margins requires an increase in unit sales of 50% to generate the same profit dollars. My retail example: a discount of 20% on 50% margins requires an increase in unit sales of 67% to generate the same profit dollars.
Finally, this is a time when every business must manage for positive cash flow. I strongly recommend a weekly or monthly cash flow plan, projected out at least 12 months, so any potential cash shortfalls can be addressed long before the situation becomes acute.
Ed spent time focusing on the challenges that small businesses are up against in securing credit in this environment, challenges that many small businesses are all too familiar with. My own concern through this period has been the risks associated with asset-based loans secured by retail inventory. These loans all too often create perverse incentives that can get a retailer into deeper trouble rather than bridge them to a more financially self-sufficient position.
The presentation was very detailed, so I encourage you to go through the slides. For more excellent information from Shepherd & Goldstein on Navigating the Recession, click here. Thanks again to Curt and Ed. Well done.