Natelsons

I am planning to retire and close my store in Fall ’09. I have good credit and plenty of friends in the business. Why should I hire an outsider to help me?

Closing a business in which you have invested a lifetime of blood, sweat, and tears should never be a “hit or miss” proposition. Realizing maximum recovery for your elusive asset “goodwill” requires a solid homerun in what may be your one and only appearance at the plate. While some have analogized handling a sale of this nature on your own to removing your own tonsils, we recognize and salute the rare “do it yourselfer” who can confidently answer all of these questions:

• When and what should I tell my employees, my landlords, my vendors, and my customers?
• What should I call my sale?
• When should I start it and for how long should I run it?
• How should I advertise and how much money should I spend?
• How should I price my merchandise and how often should I change prices?
• Should the amount of inventory on hand determine my sales projection, or does my sales projection dictate the amount of inventory I should have?
• How should sales and inventory levels vary from week to week throughout the promotion?
• How do I get rid of everything, including furniture and fixtures?

The answers to these and many other critical questions will vary from client to client, based on rigorous due diligence and comprehensive review of day-to-day results. When you do a normal month’s business in two days, your sense of time needs to contract proportionately. More important decisions need to made in shorter time frames.

Most established apparel businesses can sell considerably more inventory in a closing sale than they normally carry. Managing this opportunity optimally requires the “do it yourselfer” to temper his enthusiasm with deference to the dangerous risk of debilitating markdowns and ending inventory. Loading up with available consignment merchandise from cooperative vendors may help, but the goods need to be hand selected (not necessarily what the vendor must move), costed properly to allow for acceptable margin at deep discount and deployed across classifications that blend with existing inventory to present to the customer a proper balance of what he seeks. The best outside experts provide balanced enhancing consignment inventory across clothing, furnishings, sportswear, women’s, and kids’ apparel when appropriate to their client stores running promotional sales.

David Natelson can be reached by email at dhnate@natelsonsInc.com.

After my December Winter Clearance, January Further Markdowns, and February President’s Birthday events, I still have unwanted goods left over. What should I do with them?

One of the casualties of the current downturn is the virtual disappearance of the jobber market for “store stocks” or merchandise that has previously been sold in stores. What once may have attracted offers of 10% to 20% of retail would now be better donated to the charity of your choice. We have seen similar erosion in recoveries from Consolidation Liquidation Sale Events (off premises joint effort commingling), Consignment Outlet Stores, and EBay type internet auctions.

The answer, then, is to take the necessary steps BEFORE the first Winter Clearance Sale begins so that all your merchandise goes out the front door of your store in a customer shopping bag. Borrow two pages from the liquidation specialist’s handbook: Perfect merchandising is defined as every s.k.u. moving at the same rate of sale, and the first markdown is always the least costly.

Common mistakes to avoid:

1. Labelling your store as strictly “regular price” and not displaying markdown inventory at certain times of the year.
2. Taking across the board % markdowns at clearance time without regard to the desirability of the item.
3. Letting your cost dictate your markdown price instead of what the customer will pay.
4. Allowing vendor substitutions or short shipments without demanding return or markdown allowance.
5. Ignoring the capability of your merchandise information system to broadcast early warnings and target for you the best customers for your worst goods.

David Natelson can be reached by email at dhnate@natelsonsInc.com

My store can use a facelift, and I know that a Renovation Sale can drive additional business and help my cash flow. When is the best time to plan the construction and the sale?

The best-case scenario for planning construction or any other interruption of normal business always takes its lead from how to best maximize gross profit dollars or, more aptly in this instance, how to minimize the potential loss of gross profit dollars. The key question is during what time frame would business disruption have the most adverse effects on the business? Arguably, interruption at the commencement of the retail season will do the most harm to the business; accordingly, that’s the time not to plan construction.

Given the limited window to sell goods at full margin anyway, shortening the retail calendar due to construction would put the renovating retailer at risk with the financially strapped store that has new season shipments held back for credit reasons. In both cases, competitive disadvantages will be caused by the late start to the season—whether it be shortened opportunities for high margin selling (or conversely, a longer % of the season goods sell on sale), or worse, losing customers to competitors that fill the demand for fresh product early in the season. Accordingly, for a conventional mens store this means that construction, depending upon the season, should be completed no later than April 1st or October 1st, and preferably 15-30 days prior to that, given likely set backs in construction schedules.

The flip side to the construction schedule is how to maximize gross profit dollars prior to the period when business is disrupted. The anticipation of significant changes in the store environment creates an opportunity to conduct an extraordinary promotional sale. A Renovation Sale serves both to give advance notice to customers about the exciting upcoming plans for the store as well as to realize a competitive advantage by offering earlier-than-usual markdown opportunities due to the shortened retail calendar.

The best time to plan the sale has much to do with the financial health of the store. The healthier the store, the later the sale should commence and the shorter the sale period. Depending upon how long construction is expected to take, commencing a sale 15-30 days before typical clearance time will provide unique opportunities to capitalize on store goodwill to drive sales far in excess of last year business. If the store is experiencing downward sales, using a longer promotional period under a legitimate renovation theme will maximize the chance to thwart downward trends and raise cash.

Rick Natelson can be reached by email at mlnate@natelsonsInc.com.

Several weeks ago I read with interest your comments of common characteristics of failed stores. What do I need to do so my store doesn't become one?

Thanks for your interest. Securing adequate capital, adapting to change and maintaining proper focus are the goals. Like most well-intentioned disciplines, the problem is figuring out how to prevent falling off the wagon. I’ll suggest a few tips for your consideration.

First, keep your eye on the ball… and the name of the ball is ROI. Loyalty is a fine characteristic in personal relationships; however, loyalty that doesn’t provide adequate return on investment, whether it be an old-time vendor, employee or associate, does not perpetuate a business. Watch your markups, identify your fast and slow sellers, budget your expenses and measure your marketing strategies. Keep your customer motivated to frequent your store by flowing exciting new product and creating a satisfying shopping environment. And most importantly, control your inventories and don’t buy more than you can sell profitably.

Second, ask the right questions. The “SPICE” test (store, profits, inventory, customers, employees) is a good starting point. Is my store enhancing customer traffic, whether through unique events or positive shopping experiences? Have financial arrangements been secured to guarantee timely payments to vendors? Are classification sales forecasts being revisited monthly based on what customers are buying (or not buying)? Have initial markups been competitive? Have alternatives for high markdown items been explored? Are customers adequately profiled with respect to their individual wants, needs and circumstances; and do you communicate with them on a regular basis? Do employees understand the store mission and are they team players? Is the selling staff incentivized with realistic sales goals?

Third, pass the “not about me” test. Treat your store as a business, not a trophy. Ask yourself what I need to learn next, not how much I already know. Pick others’ brains and gather enough information to make smart, business decisions. Identify change quickly and don’t get captivated by old habits. Come to the realization that the best ideas often won’t be your own.

Rick Natelson can be reached by email at mlnate@natelsonsinc.com.

Your company, Natelsons, has worked with retailers on hundreds of sales; but a sale is a sale. What makes one sale more productive than any other?

A: Every retailer conducts promotional sales events to convert inventory into cash. Some stores utilize sales events only during seasonal clearance times; others tend to run sales more frequently throughout the year. Some sales events, however, fall outside the normal course of business and generate extra revenues over and above the norm. We call this occurrence the monetization of goodwill.

Goodwill is vaguely defined as what a willing buyer would pay for a business in excess of its book value. Even without a willing buyer, a store owner can tap into the value of its goodwill by conducting an extraordinary promotional event. All things being equal, customers will prefer to buy at their store of choice. Typically, however, unless the customer’s need arises, there is no sense of urgency.

Milestones or major changes, e.g., a retiring owner, an expiring lease, a move to a new location, an unusual shortage of cash to pay creditors, create unique cash raising possibilities by motivating present and potential customers with a distinct sales pitch yielding unusual benefits. But this only happens if management takes the initiative to recognize the opportunity, define it and send that message to the community of prospects.

The size and quality of the store’s customer list enhances goodwill because it provides the most efficient access to an audience that already has a favorable bias toward the store. If the message is compelling, the customer will plan a visit as soon as possible. He or she may phone a friend before or after the visit. Ideally a buzz will filter through the community with a ripple effect beyond the core customer population.

The message conveyed must be credible in both tone and substance. Honesty is a virtue—whatever the scenario, the stated facts must ring true. A personal telephone call, a first class letter in a sealed envelope, an e-mail message all have the potential to convey sincerity and urgency from a familiar source. These media have the advantage of exclusivity and intimacy.

The storehouse of goodwill, of course, can be depleted inadvertently. Whenever a customer is disappointed, i.e. something about the offering was either overplayed or otherwise appeared less than expected, store credibility and likewise goodwill will have been damaged. If, for example, the merchandise on hand is not up to standard, expectations will have been dashed and goodwill dissipated. The most damaging of all disappointments is the event that turns out to be a sham.

Appraising the goodwill of the store is necessary for an accurate forecast of the sales potential of the event. From the forecast flows the budget for merchandise, advertising and other expenses. From the initial concept and themed message flow the window and banner signs, the point-of-sale signs, the newspaper publicity and the more strident media advertising.

The amount of cash realized from these out-of-the-ordinary promotional sales events is directly related to accumulated store goodwill. By monetizing goodwill, these sales differentiate themselves from ordinary clearance sales.

Rick Natelson can be reached by email at mlnate@natelsonsInc.com.

Q: Why do people hire firms like yours? Aren’t you a service for failing, cash-starved retailers?

A: Retailers whose income statements bleed red ink are certainly candidates for promotional sale consultants like Natelsons, but financial distress is only one of many conditions that may lead a retailer to the opportunity of running a short term cash raising liquidation event.

“Relocation” sales, enabling a retailer to preserve his best assets and liquidate his most distressed, are increasingly popular in today’s volatile real estate environment. Whether or not a store is profitable, changing demographics and motivated landlords may enable stores to take advantage of a powerful sale handle, position themselves more conveniently to their client base, and lower their operating costs for future increased profitability.

Successful multi-unit retailers may have difficulty replicating their winning formula in each of their locations. Personnel, competition, or lease term concerns may make the “Store Closing” sale a necessary strategy to strengthen the company when relocation options are not readily apparent.

Even the most successful and well-heeled retailers may reach a point in their lives when they want to cash in their chips and smell the roses. In the absence of a younger able family member, a cash rich employee, or expansion minded competitor, a “Retirement/Going-out-of-Business Sale” enables the storeowner to give his customers and himself a celebration, both ceremonially and financially.

In fact, over the last five years, more than 60 percent of the retailers who hired Natelsons for promotional sale assistance were financially capable of handling the sale themselves. Circumstances brought them to the point where the sale was an appropriate strategy, and rather than risk their wealth in uncharted waters they chose to rely on the guidance of experienced professionals to make the most of their opportunity.

David Natelson can be reached by email at DHNate@natelsons.com.