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6 Tips for Weathering a Sales Dip

  
  
  

The past July, the weather in southern New England was unseasonably oppressive. If you were going to be outside, the only place you wanted to be was the pool or the beach. Not out shopping. As a result, a client of mine found their sales take a very unexpected tumble. 

At the end of August, Hurricane Isaac came a-calling along the Gulf Coast. While not nearly as destructive as Katrina, it still knocked the local economy for a loop. In New Orleans, conventions and vacations were cancelled. As a result, a client of mine saw their sales take a short-term hit. 

More often, however, a soft patch in sales has no obvious explanation. It may last a week or two, or perhaps several months. It may be a fairly mild dip, or it may be more significant. Either way, it can become very disconcerting if it upsets delicately balanced finances. 

There are steps that you can take to get through those soft patches, and still feel like you’re in control of your destiny. But first, let me define what I mean by a soft patch. Almost every independent retailer has seasonality to their business, with peak selling months and slower selling months. Those slower months are not a soft patch. A soft patch is when you’re not making your sales plan (although some of these tips do apply to managing your way through a seasonal slow period). 

So what can you do when you hit a soft patch? Here are 6 tips: 

  1. Focus first on the bottom line. When sales dip unexpectedly, the first instinct is to quickly come up with something to jump start sales. That instinct is not wrong, but it should be the second instinct, not the first. The first instinct needs to be to protect the bottom line. I encourage all of my clients to have a cash flow plan so each month they know what their cash flow objectives are. If the top line is going to be off is to make sure the bottom line still comes in on plan! 
  2. Review every purchase order. The biggest cash eater is inventory. If sales are soft, your monthly ending inventory levels are going to come in heavier than you planned.  When sales hit a soft patch, the natural instinct is to assume sales will bounce back, and to let the inventory keep flowing, but that will inevitably lead to a build-up of inventory, and the payables for that inventory.  Keeping inventory in line with sales is essential to having the cash to pay your vendors. When sales hit a soft patch, cancel or defer what you can to keep inventory in line with sales. 
  3. Focus your reorders on core product. When you hit a soft patch, demand decreases across your assortment. Most commonly, the sales of core products holds up pretty well while those items along the edges of your assortment drop off more significantly. This makes sense – your customers focus their dollars on those things they most need and want, which is what your assortments are built around. Even in a short-term dip, you want to focus your purchasing dollars on those things that are going to turn over the quickest, and forego those things that are more likely to sit in your inventory longer. 
  4. Review your merchandise payables. If the inventory is already in your store, but the bill hasn’t been paid yet, you’re still staring at a potential cash crunch. With the soft patch in sales, you need to review when you’ll be able to realistically pay those invoices. If you’re on top of the situation, it’s likely that you’ll only need an additional 30 days, but the sooner you advise your vendors the more cooperative they’re likely to be. Remember, vendors prefer doing business with retailers who are on top of their businesses because they understand that those retailers have true staying power. 
  5. Align your payroll with your staffing needs. With fewer feet coming through the door, you may not need the same level of staffing that you usually do. Here’s where it’s important to have a payroll structure that can be managed like a variable cost rather than a fixed cost. If you have a staff made up of salaried or full-time hourly employees you have much less flexibility to react to a soft patch than if you have a staff balanced between salaried or full-time hourly and part-time hourly employees. In the moment, when the soft patch hits, if your payroll is structured as a fixed cost there’s little you can do. If that’s the case, now is the time to plan to evolve the structure of your staff so that it’s structured more like a variable cost. 
  6. Run a Flash Sale for a quick infusion of cash. In general, I strongly discourage running sales or price promotions because they are terribly corrosive to long term business fundamentals and brand equity. In a sales dip, however, it’s nice to have in your back pocket the ability to inject a quick hit of cash into your business. A Flash Sale is a sale that you announce via email and social media 24 to 48 hours beforehand, that will run for a day or two, on a very limited range of desirable items. To your customers, because it’s unexpected, it’s a very pleasant surprise. But, to protect pricing integrity, this is a tool that must be used infrequently and irregularly. Still, at the end of a difficult month, when the bills are being paid, it’s nice to have the ability to bring in a few extra dollars. 

Building a business is a long-term proposition, and there are going to be dips along the way. When a dip occurs, it’s usually a short-term thing requiring a short-term response, not an event requiring you to alter your long-term strategy. Follow these tips and you’ll successfully weather the dips while continuing to build a successful and sustainable business.

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