Hey there, it’s Elliot, Co-CEO at Material. There’s been a lot of talk lately about economic uncertainty and what it could mean for the retail industry. While I don’t have a crystal ball (anyone want to sell me one?) and I can’t see what’s coming, I wanted to share some ideas I’ve seen help independent retail businesses survive and thrive during economic downturns when consumers are tightening their belts and spending less. Growing up, I saw my parents navigate multiple tough economic periods with their retail business, and each time, they came out of the downturn with a leaner, more efficient, and ultimately more sustainable business. So, while the ideas in this post are particularly important during a downturn, they are solid ideas for any economic environment, and worth considering for your business today.
Before I jump into the four ideas I want to share with you, here is a little food for thought.
I talk to a lot of different merchants, and one thing I see time and again is that top line revenue does NOT indicate profitability. Many times, two businesses doing the same amount of sales make totally different amounts of money at the end of the year. One business doing $1MM in sales will make $200k in profits while another may barely break even. One business owner may always be behind on bills, overbought, and struggling to buy new inventory while another is always paid up and ready to buy. We all want to be in the latter group! So, what are business owners in the latter group doing that sets them apart? The difference is often a matter of operational details.
Here are four ideas to help you make your retail business leaner, and more recession-proof.
1. Double down on your existing customer relationships
We know that people spend money at businesses and with business owners that they feel some connection to. It’s important to continue to strengthen the connections you have with your core customers. As you move through the season, we suggest throwing a few holiday parties or ladies’ night outs. Buy some champagne and chocolates, give out some free gifts, and have a good time. You can host a great event with just a couple hundred bucks. Host the event at a time you know your customers are most likely to show up. For example, if you are in an area with a lot of offices, make the event on Thursday night from 5-8 PM so people can stop by after work.
It is significantly cheaper and easier to get an existing customer to shop again than it is to get a new customer into the shop. Keep that in mind when doing any customer outreach or marketing.
2. Watch your buys
This one is huge. Do not overbuy inventory. Your biggest cash sucker is your inventory, and, at any point, you may have $50k to $200k or more in inventory sitting in the store. Now is not the time to have record inventory levels. Be careful not to overspend. The last thing you need is to be sitting on a bunch of inventory if sales start slowing down.
If you are a business that makes your purchases a few months in advance, you should be monitoring your current inventory frequently to see if any orders should be canceled. Be considerate of your vendors, as they won’t be happy to see canceled orders, but your first priority should be to keep your business alive. If you are already overbought, there is no reason for you to be taking in more merchandise. You can always take in a select few items, but you should not hesitate to cancel orders if they are going to jeopardize the health of your business.
3. Markdown merchandise
We all have merchandise in the store that needs to go, so get rid of it. It’s easy to feel attached to merchandise. Maybe you really like it. Inventory ties up cash and it’s important to move stale inventory. Marking down items 50, 60, or even 70% that are not selling in order to drive sales and improve your inventory position is a great way to increase your cash flow. Early in the year is a great time to do this. We are done with the holiday season and people tend to take a break from shopping. You can entice them to shop with huge markdowns and at the same time free up cash and shelf space for next season’s inventory.
4. Call your landlord
Pick up the phone and call your landlord. I don’t care if your rent is $5 a month or $20,000. Let them know that business is bad and you need a break on the rent. Do everything you can to work out some type of deal. Practice your talking points beforehand and show up to the call prepared to negotiate. Every dollar you save on rent is an extra dollar you’ll have to make a sale. Of course every lease and landlord is different, but the worst-case scenario is that the landlord says no, you don’t lose anything if that happens.
And while you’re making calls, you can also use this approach to review all of your recurring expenses and reach out to those companies to try to get the bill reduced. It can be as simple as calling your cable provider and threatening to switch to a competitor. Maybe you’ll save $30/month for a year. It may not sound like much, but if I told you that making one 15 minute phone call would save you $30/month for 12 months, $360 for the year, wouldn’t you do it?
So there you have it, four tips for staying lean and making your business recession-proof. Did we miss anything? Do you have a story you’d like to share with us? Email us at firstname.lastname@example.org, we’d love to hear from you.
Thanks for reading! I hope these ideas can help you get through the good times and the bad.