A Shaky Economy is no Excuse for Shaky Management - Smart Moves for Tough Times By Phillip M. Perry Excerpted with permission from Floral Management, December 2001 While no one wants to over-react to unsettled times, you do want to know what steps to take now to protect your business. Here's what top retail consultants advise: 1. Reinforce sales efforts. "In fat times, sales efforts can get lax," says Les Behrend, president of Preferred Management Installations, North Barrington, IL. Now's the time to beat the drum." Today's successful retailers will keep a constant vigil in this area.". Great selling tactics include telephone calls to new and past customers, more aggressive direct mail programs, more in-store seminars and creative thinking about how current products and services can be sold to new groups of customers. Successful retailers, says Behrend, will also improve their "upselling," a term that encompasses a number of techniques to increase average ticket size. For starters, salespeople need to suggest related merchandise to active customers and explain the benefits of higher-priced selections. Retailers should re-energize their point-of-purchase (POP) displays to stimulate impulse buying throughout the store and at check-out. "POP" gets people to buy more than anything else, "Behrend says. "It's one of your best sales tools." Bonus tip: Ask your staff to share their experiences about what works and what doesn't on the sales floor. 2. Watch expenses closely. In good times, expenses tend to grow beyond their usual limits as retailers drop their guard. Now is the time to take a fresh look at each expense, eliminating those that do not contribute to profit. If you review your costs on a daily and weekly basis, you won't face unmanageable bills at the end of the month. Pay particular attention to equipment, and to getting more out of what you already own. "Instead of throwing something away and getting a new register or computer or building, figure out what's wrong with what you have and make it work," says J. Tom Brown, president of Tom Brown & Co., Wilton, CT. "Especially in the area of computers, a lot of times people rush to upgrade when they don't need the latest and greatest." Re-evaluate your advertising, where allocating dollars can be both art and science. Blanket rollbacks of advertising programs can backfire. "You will lose something if you stop the flow of advertising, which is a cumulative thing." says Brown. "People don't buy until they are ready, and the whole idea of advertising is to help them remember you when that time comes. Take advantage of the increased leverage that results when companies cut advertising budgets. Leftover unpurchased ad space can be bought at a discounted rate. Bonus tip: Be aware that your competitor may cut back on advertising, giving you an opportunity to expand your market by redirecting your program. 3. Monitor your cash and inventory mix. In times of greater risk, retailers need to increase their liquidity to assure survival in the event of a sudden downturn. "Cash is king," says Joel Getzler, president of Getzler & Co., New York. "Monitor your cash so you are not keeping it tied up in inventory." Cash flow can dry up if sales suddenly go south and bankers restrict lending. You'll need a reserve of cash to keep you going. For most retailers, cash tends to disappear into a black hole of inventory when sales slow. "It's easy to fall into the habit of holding too much inventory, with the idea that tomorrow will be a better day," says Getzler. "Now is the time to move the dead or semi-dead inventory to raise additional cash and free up space for faster moving items." Beware of overlooking merchandise holding costs. "People can get suckered into thinking the only thing that counts is what they pay suppliers for merchandise, so they buy more than they need to get the best price," Brown says. "Space and inventory have costs. It's easy for their combined values to be larger than any discount enjoyed by buying excess quantities." 4. Track individual inventory items. Monitor the sales of individual items, or stock-keeping units (SKU's), and replace sold items, if they move well, with like ones. Watch out for bad re-stocking habits that may have been cultivated over more recent times. For example, your staff may be routinely filling newly emptied shelf space with slower-moving merchandise that happens to be in the stockroom. This common error slows overall turn and frustrates shoppers who can't find the merchandise they want. Since the gross margin on many slow moving items is usually lower than on fast ones, your business gross profit can decline as well. "Always make sure the right item is put in the right slow by your stock people," says Michael Appel, president of Appel Associates, Purchase, New York. "If you don't control your inventory mix in changing times, your profitability will be compromised and your working capital will be tied up in inventory." Appel suggests holding back some of your budget for opportunistic buys, which can occur more often in difficult times. "If you stay alert and in the market, and keep some money on hand, you can cut some good deals," Appel says. Bonus tip: When selecting new inventory, stay in your core business and expand it. Avoid straying into new areas that require expensive sales and marketing. 5. Manage with the human touch. Any decision to reduce personnel needs to be weighed against the psychological impact on the individuals who remain, and the effect that impact will have on customer service. You must preserve your connection with customers, which can be harmed by employees who are unhappy. "If staff cutbacks are not done right, you violate the doctrine of perceived fairness, and people break trust with the organization," says Larry Senn, of Senn-Delaney Leadership Consulting, Long Beach, CA. "Rather than just wield an axe, appeal to people in terms of human motivations. If you make a staff change you need to explain it in terms your staff understands or risk creating uncertainty that sends your operation into a downward spiral. 6. Involve your staff. "Look internally for your business solutions," suggests Getzler. "In tough times it's very difficult to increase the top line because people are not buying. It's easier to cut costs, and very often your employees will have good ideas on how to do so." "It's a matter of communication, understanding and listening," says Senn. "To the degree that you can get your team together to face the challenge, you will come out a winner. This is a good time to listen to your people."