Editor’s note: James McCusker has recovered from an extended illness that kept him from writing his regular column. He wants you to know that he is glad to be back, and that he missed his readers very much.
There is an old saying that goes, “those who are not worried are seriously under-informed about the situation.” It could easily apply to today’s retailers.
It takes some effort these days to be under-informed about the problems of retail businesses. Newspaper headlines and TV news stories about nationally known retail chains stumbling or failing have been appearing with worrisome regularity.
It isn’t just large, national names that are being affected, either. Many small businesses, some of them fixtures in their own communities, are swept up in the same market forces — just without the headlines.
A sporting-goods store in Redmond, for example, recently closed after the business was sold to a large distributor. Many Seattle area residents were saddened by the store’s passing for it had become, over the years, a fixture in the community. It was the store where fathers took their sons to get fitted for their first baseball glove, just as their own fathers had taken them. And it was a place where new traditions were born as fathers took their daughters for their first bats and catcher’s mitts.
Retailers today worry that they will become casualties — left behind as their customers change their habits and preferences and move to markets where today’s businesses cannot compete.
Sears, for example, was once the largest retailer in the United States and it got that way by seeing an under-served market in the millions living in rural America who did not have easy access to the department stores in cities.
Sears essentially created the mail-order market — the granddaddy of today’s Internet sales — with its key to success: home delivery. The firm continued to innovate in response to market and consumer shifts. In pursuit of a “one-stop shopping” concept it diversified into sales of securities, real estate, credit cards, and even computers and Internet access. In the process, though, Sears seemed to lose its identity and, worse, lost its grip on fundamentals.
Those factors, along with the bad timing of reshaping itself as a department store when consumers were moving away from the concept. That created a cash-flow problem and the retailer responded by closing stores and selling assets. The sale of the Craftsman business to Stanley Tools seemed to put a seal of finality on Sears, and its future is much in doubt.
Another icon of American retail is Macy’s. Macy’s annual Thanksgiving Day Parade was, and still is, for many, the semi-official start of the Christmas shopping season. Unfortunately, icon status does not include a cash award and Macy’s is now in a fight for survival.
If these big names like Sears and Macy’s, with all their resources, can’t make it in this retail environment, what chance does the smaller retailer have? A good one.
Start by not giving up. That will help more than you might think. The retail survivors of these changes will not include those who waited passively for stuff to happen.
Your old business plan can help. Blow the dust off it and its basic structure will serve as the framework for your new competitive plan.
Business plans generally have four main sections: marketing; production; finance; and management. And no matter what strategy you adopt, understanding the changes that each section will go through is crucial to your success.
All retailers, from giants like Amazon and Walmart to the smallest sandwich shops and pajama websites are coping with rapid changes in their customer preferences and market pricing.
Because of their lower purchasing power, smaller businesses are likely to find themselves with their operating margin caught in a squeeze between more price-conscious consumers and increasing cost of goods sold.
Lower margins will mean lower profits and retained earnings and will make it harder and harder to afford capital improvements or even routine maintenance. It is a slow, dispiriting death for those who put so much energy and heart into their businesses.
Make sure that your new strategy includes close monitoring of your operating margin and emphasizes the “buy side” of your business as much as the “sell side.”
The sell side, of course, includes taking care of your customers. They are more price-conscious than they used to be, and they will use the Internet to compare prices even if they plan to shop at a store. But the fundamentals still apply.
Do whatever it takes to get them to buy from you, to visit your store or website and return because you share your product expertise with them, have competitive, if not always lowest, prices — and they were treated so well.
One thing about retailing won’t change: take care of the fundamentals and the fundamentals will take care of you.
James McCusker is a Bothell economist, educator and consultant. He also writes a column for the monthly Herald Business Journal.