Several recent conversations lead me to believe that we are beginning to adapt to economic realities—and even seeing some measure of recovery. On a macro level, the entire pipeline, from mining to retailing, is undergoing harsh adjustments, and none of it is pleasant. On the micro level of individual companies, the adjustments are practical and market driven.
One manufacturer told me he had put factory people on three-day weeks instead of letting people go. He was chagrined to find that productivity did not decline. The factory produced as much in three days as it had in five. The old saw about workers stretching out work to fill the allotted time comes to mind, working in reverse in this case, but maybe everyone grasped the need to work as efficiently as possible and preserved jobs in the process.
Some of the new market-driven realities are tough. One supplier told me his bank has a profit covenant in their loan agreement. All is well so long as the company shows a profit. That’s one great incentive for making sure every opportunity for sales is followed and every cost is watched.
Generating sales is encountering cash-flow issues at the retail level. Some retailers are not generating enough gross profits to cover operating costs. That makes payments to vendors difficult, and that in turn cuts off the ability to buy more merchandise. In essence, these retailers are eating their seed corn. They need to act decisively, before it’s too late to save their businesses.
People believe that in time, as competition declines, survivors will have a larger piece of a smaller pie, and good profits will return. While that may be true for some time in the future, that’s hardly a plan.
In some industries, especially those that enjoy continuous innovation and where the markets haven’t been saturated, real opportunities exist in a down market to capture share and expand. We live in an industry that sees little innovation. I do not consider a constant flow of new jewelry designs to be innovation. That’s just an inherent part of the business. I once asked a successful large retailer what he would prefer, a great new jewelry design or a great new idea. He preferred a great new idea. Great designs abound, he said, but great ideas are rare and hard to find.
So where do we find that great idea? An old saying goes that even a blind squirrel can trip over an acorn. But while we can keep an eye out for a tasty acorn, what is one to do?
Think of any business as composed of three key areas: sourcing, selling, and service. The “three Ss,” we might say.
Sourcing requires real skill in understanding one’s own marketplace and product trends, inventory management, and in finding the best vendors. Too often we fall into a pattern of buying essentially the same things, over and over, and never study where the profit is made and which vendors offer the best opportunities for profit.
Selling requires skills in merchandising, sales techniques, and good marketing. Do you know if you have holes in your selections, both from a design point of view and in range of price? Lean, well designed merchandising plans can have a dramatic effect on profits and cash flow. Product knowledge and good sales techniques are chronically absent in the business. And a thorough, cost-effective marketing plan that delivers a strong and easily understood message is just as important as the products you carry.
Service requires dedicated attention to meeting consumer needs and demands. That requires fast and responsive systems, thoroughly trained customer service personnel, and working with suppliers that will fully mesh with service policies that anticipate every customer need.
While it may look simple, none of these core functions are easy to execute well. After decades in the business, I have rarely seen any operation that’s excellent at all three. But succeeding in the coming years will mean just that. We’ll be selling to a well informed and demanding public.
A detailed operational review organized around these three critical managerial areas would reveal what needs to be remedied. If you can’t properly review your operation (and most of us have thin staffs whose focus is the mountain of detail in front of them!), then get help.
You know in your bones that it is time to turn the page. So do it.