January and February are the cruelest months for retailers. It’s when the balance sheets reveal holiday demand was soft.
In the old days, you could get by with an off couple of years, but the timeline is much shorter now.
So many smaller retailers seem to be looking at the Macys, JC Penney, Target-Canada, Deb Shops, and Wet Seal closings as anomolies.
They are not.
I read a blog entited Quilt Shop Confidential the other day. The gist of it was summed up in this sentence, “Many quilt shops run on the direct benevolence of spouses with full time (good) jobs, or due to a healthy pension.”
The truth is many retail businesses only stay open on the benevolence of someone, a clueless owner, an active owner with deep pockets, or the stock market.
But let’s not kid ourselves, there are many tax advantages to having an unprofitable business.
For some, it’s like that line Mr. Potter tells George Bailey in the movie It’s A Wonderful Life, “You’re worth more dead than alive.”
For some, an unprofitable business can be a tax shelter. When a spouse has another source of income, you may be able to use the losses from your business to offset your taxable income.
That said, businesses exist to serve a wide enough assortment of customers to make a profit.
When it can’t do that, and the benevolences are gone, and the losses cannot be justified, smart business leaders change or simply close down.
And that has nothing to do with their size…
Just last month Target closed over 100 locations in Canada to focus on their US stores.
Wet Seal closed 338 stores.
Deb closed 295 stores.
Cache just announced they would close their 218 outlets, and had not reported a profit in the past nine quarters.
And Radio Shack is about to either totally go under or become a shadow of its former self, depending on who you read.
On any day, you can find a local brick and mortar toy, book, electronics, or fashion apparel store closing down.
Make no mistake, retail isn’t for sissies.
And if you have several locations and are closing down a couple because they are unprofitable, I applaud you. You’re thinking like a merchant.
But if you feel you have been one of the few not making a lot of money in your retail operation, and you do not enjoy enough demand for your store to be highly profitable, whether you are the owner of a single-unit, a franchisee or a C-level executive of a chain, you have three choices:
Acknowledge the losses are contributing to your personal bottom line.
Acknowledge you have been lax, and get your butt in gear to expect more from yourself and your store. You have to develop the will to break out of your coccoon if you want a profitable business.
Acknowledge the upside just isn’t there and close. If you answer, Should I just close my retail store and be done with it? with a yes, realize there’s no shame in joining the ranks of brands who have called it a day.
If you choose the second option here are four ideas…
Look at your payroll and let go. Are you providing a better way of life for your crew then you are for yourself? Martyrs don’t get anything but ulcers. I had one woman call last fall to say how she wasn’t making money after several years in business. She told me she paid her manager, a friend who needed a job, over $50,000 a year. I told her, “You can’t do that.” Many struggling businesses cannot afford to pay a manager and benefits. She needed to do that job herself and demote or fire her friend.
Look at your inventory and let go. Are you carrying too much on your salesfloor that simply isn’t going to sell? If so, hold a huge clearance sale, so you can focus on what does sell profitably.
Look at your hours and expand them. Are you maintaining 90% of the hours of your competitors? So many smaller operators complain they don’t make money, but they admit to being open only Monday through Saturday from 10-5. You need to be open when customers who work will be able to shop. If you must close, close on a Monday.
Look at your marketing. If the only way customers shop with you is when you have a 30% off storewide sale, you have not created a profitable customer base; you have created a culture of bargain hunters. You need to find ways to get people to pay full price day in and day out. An occasional sale or a single line discount for a week is frosting; without the full price cake, you have no dessert.
Look at your selling abilities.Stack it high and let it fly is over. It only worked for Wal-Mart several generations ago. Each piece of merchandise you’ve curated needs to be shown and sold. If you have too much crowded around it, clear it out. If you feel selling is pushy, realize you need to change your perception. You don’t eat if you don’t sell. Aren’t you tired of providing income for your landlord, banker, sales reps and others? Of course you are. Do something to move the merchandise; it won’t move out by itself.