Here’s your opportunity. An established resale business is for sale. You get all the advantages of a ready customer base, established consignors and name recognition. Someone else has done all the really hard work, right? Not so fast. There are a multitude of things to consider when buying an existing resale store. Now’s the time to start asking questions.
First and foremost, you need to know why the owner is selling the store. There are many legitimate reasons for selling. Retirement, health issues or a myriad of other life changes can all be motives. It may seem like prying, but you have every right to know exactly why the owner is making this decision at this time. Don’t be afraid to ask the hard questions.
When buying an existing resale store, require full disclosure on all financial records. If they resist, walk away. Unless you have a strong financial background, hire a professional to look at the books. Take a hard look at the business practices of the previous owner too. Many resale shop owners understand secondhand buying and selling, but do not know how to run a brick and mortar business. Do you see areas of lack that you know you could improve? Ask yourself, “What is my potential return on investment?”
It’s drummed into our heads when we buy a house…location, location, location. The same is true for a small business. Changes in the demographics of a community, new business regulations, even possible legal issues can negatively impact its success. Find out if the current lease is transferable. Study it closely. If the lease isn’t transferable or the landlord isn’t willing to work with another owner, it may be necessary to relocate. Moving locations will greatly impact your bottom line. Take a close look at the physical building too. Is it near other businesses with lively foot traffic? Does it have adequate parking? How’s the current signage? Factor those issues into the final buying price as well.
It needs to be a turnkey purchase. You get the entire inventory, and the complete list of consignors and customer contacts. By closely reviewing both consignors and customers, you can determine if the store’s success is primarily the result of a few customers or a few consignors. That makes the purchase a bigger risk if those few consignors and customers are loyal to the existing owner. If it’s a consignment shop, require the owner to pay each consignor in full before buying.
Request all of their equipment, racks, computers, label printers, labels, etc. This will be a huge time and money saver for you, unless all of it is outdated. If so, use that as a bargaining chip to reduce the sale price. Together, with the owner, take a full inventory of exactly what items you want to be included in the deal. Then, determine the overall value of the store. Don’t accept the “personal opinion price” of the current owner.
Budgeting for an acquisitions attorney to review the contract of the sale is essential. It’s easy to miss legal details on the terms of sale. Unless you have legal experience, don’t skip this step. The seller may knowingly or unknowingly have financial or legal skeletons you know nothing about.
Before buying an existing resale store, ask for a 2-week trial period where you work as an employee. Watch how the current employees interact with customers. Talking directly with all those involved with the store will tell you far more than the store owner. Ask them how they would feel having a new owner. Is the merchandise the type and quality they are looking for? By working in the store, you can also decide whether the current staff should stay or go. It’s helpful to have employees that are knowledgeable about the business, but only if they work well with customers. Make sure you understand their salaries and any benefits they may also be receiving.
Make sure you read any online comments about the shop. Visit Google, Yelp and any other local sites that might have reviews. It takes a long time to overcome an existing negative reputation. Even “under new ownership” can’t help if shoppers have never had a good experience. It would be necessary to completely re-brand the store with a new name, logo, signage, etc.
There can never be too many questions before buying an existing resale store. The more you ask, the more prepared you’ll be as a small business owner. As the buying process is taking shape, be sure to sign up for your free 15-day trial of SimpleConsign web based software (unless, of course, they’re already a customer of ours). We’ll show you how to save time and money.
Updated on 4/12/2021
A successful consignment business begins with a solid business plan. It outlines your overall vision. The time you invest in creating this document saves you money and keeps you on track for the long haul. According to Entrepreneur.com, a consignment clothing store requires $3,000 – $10,000 to launch. Then, it takes at least two years to work out all the kinks. Carefully consider your business structure, consignment policies and your goals for the future. To learn more about financing, read Build a Strong Consignment Business – Step 1.
Remember, it truly is all about location. That’s why it’s so important to become very familiar with the neighborhood you’re considering. By visiting the local city hall and gathering as much information as you can regarding income, age, marital status, etc. You can make sure there’s a market for your type of store in the area. If you aren’t comfortable talking to a competitor, at least browse their store and marketing materials. Then, contact similar businesses in other cities or states. When your market has a lot of second-hand shops or a large, well-known shop will be in direct competition, think about ways to make your store unique. Find your niche, by reading Build a Strong Consignment Business – Step 2.
To become a successful consignment business, you need to attract consignors with quality merchandise. Don’t open the doors before the shelves are full. Shoppers will hesitate to come back. However, if you fill your shelves with inventory shoppers aren’t interested in, they won’t return either. By knowing your neighborhood and its demographics, you’ll know what merchandise to offer. Advertise for consignors in your local newspaper. Do website searches. Plus, scour yard sales, auctions, estate sales, business liquidations and thrift shops for good deals. Learn to bargain and negotiate. These skills will be needed when interacting with consignors. Read Tweaking Your Consignment Acceptance Policy and Inventory Management: Because You’re Running a Business, Not a Museum to learn more about your inventory.
Often times shoppers form lasting impressions of your consignment shop based on the layout of your store. No matter how well-stocked the store is, if it isn’t clean, bright, organized and attractive, customers will find another place to shop.Visit your favorite retailers and see how their merchandise is laid out. Place must-have seasonal items in the front of the store. Sale items and everyday products are in the back. Display smaller items that cost less than $10 next to the register. These impulse purchases can add up to significant sales each month. It’s also important to vary how you display your items. Changing up the same merchandise makes it feel new and different. For more merchandising tips, read 6 Tips to Improve Store Design.
Reach out to your community for support. Team up with other businesses in your neighborhood to offer cross-promotional services and discounts. Dry cleaners or tailors offer excellent cross-promotional opportunities for a clothing store. An aspiring jeweler could sell original accessories that complement a formal wear shop. Or, you could cross promote with a hair and nail salon. A children’s consignment store should partner with a local photographer for a customer appreciation sale. A furniture shop always benefits by having a solid relationship with a moving company. To learn more about partnering with other shops in your community, read Pros and Cons of Teaming Up with Other Resale Shops.
To become a truly successful consignment business, look for every available opportunity to build your vision. Join organizations such as the National Association of Resale Professionals (NARTS). Get involved with your local Chamber of Commerce. Find ways such as Shop Small Saturday to encourage your community to shop local. Do your homework and you will be successful.
Opening a new business? Be sure to read our Getting Started Success Kit. Sign up and start building a better business today.
No matter where you are in the process of owning your own store, there is room for improving your business plan. Your resale business plan is the foundation your store is built on. It’s filled with numbers and policies, saving you time and money. But let’s face it, very few businesses have a complete business plan.
Unfortunately, business plans attempt to predict the future. You plan and prepare, but there are always factors you have not considered. One critical mistake that many resale businesses make however, is not forecasting sales. Owners of resale shops think because their items are usually one of a kind, they can’t predict future sales. Nothing is further from the truth.
Forecasting uses past and present information to look at the future. It doesn’t require a math degree, just the good old-fashioned ability to make an educated guess. To determine the success of your resale business, you need to estimate at least 52-weeks of future sales. How is that done when you’re a brand new business or open less than a year? For that matter, how does any business determine future sales?
One forecasting approach looks strictly at data. Take a look at the success or failure of businesses in your community. Study the competition as closely as possible. Since the rise of resale came out of the recession, study your area’s overall economy. Look at the demographics of residents in your area. Check with your local Chamber of Commerce to see their predictions for growth. If you’ve been in business for awhile, review past sales data closely. Look for seasonal fluctuations and even weekly changes, if possible. Find the trends.
To realize there’s money in the resale business, you only need to look at the success of ThredUp and The RealReal. Unfortunately, translating their success to your business is the challenge. Another type of forecasting uses basic gut intuition and the valued opinions of others. According to recent articles, the upcoming Millennial and Gen Z generations are very interested in sustainability and eco-friendliness. Upcycling vintage merchandise continues to grow. Plus, the success of cable channels like HGTV shows the nation is thrilled with taking the old and making it new. Intuition would tell you there’s only room for growth in the resale industry.
ThredUp recently released a study that suggests the apparel resale industry will almost double by the year 2021. According to their data, it was $18 billion in 2016. They are forecasting the industry will reach $33 billion within 5 years. The National Association of Resale Professionals (NARTS) states the industry has grown 7% each year for the last 2 years. At Traxia, one of our goals is to educate the resale community. We have worked with well over 1,000 resale shops. Generally, the reason shops leave SimpleConsign is because they are closing their doors. Why do some shops thrive while others do not survive? Read The 7 reasons consignment shops fail and how you can avoid them.
Remember, forecasting is nothing more than an educated guess. The results are not set in stone. Simply put, estimating future sales for 1 year is a strong indicator of success or failure, but it is not gospel. A lot of factors come into play. For more information, read Creating a Sales Forecast.
The Retail Doctor Bob Phibbs wrote about why small businesses fail. It got me thinking. We’ve seen our share of consignment shops fail over the years. In fact, from the beginning of our relationship with a shop, we can often tell whether that owner is going to make it or not. There are clearly several reasons why certain consignment shops fail.
I’ve mentioned this in other blog posts. Read 10 surefire ways to be a successful consignment shop owner. When you own a consignment store, you need to understand business basics. As Phibbs says, you need to focus on the “fundamentals. Profit and loss, break even analyses and cash flow are the basics of running a small business.” It ought to be a given, right? However, I’ve spoken to new owners who are so excited about fulfilling a lifelong dream, but have no clue about running a business. They understand how to price their merchandise, but don’t take into consideration their overhead. Their basement is filled with treasures, but they don’t know how to manage, merchandise and market. The fastest way to fail is to not count the total cost. If you don’t understand it, find someone who does.
Phibbs says, “You can do the jobs of two or three people, but you can’t BE two or three people.” Burn out, exhaustion and lack of a life in general is another reason consignment shops fail. When you are the sole person responsible for inventory management, consignment intake, consignor and customer relations, the cleanliness of your shop, etc. something has to give. Every business owner needs the support of a manager, sales staff and others who can pick up the slack. Yes, being a sole proprietor is exhilarating, but that wears off quickly when your electricity goes out and you’ve misplaced a consignor’s rare Renoir painting. Build a team, not a store. If you take on a partner however, make sure you can survive the good and the bad together.
The key to success is moving merchandise quickly off the sales floor and out the door. In the beginning, in order to stock the shelves, you most likely accepted everything consignors brought in. Successful consignment shops follow the “less-is-more” theory. Carefully curate items according to sales data. Capitalize on the consignment benefit that everything’s a one-off and buyers should buy it when they see it. Change up your sales floor frequently so the same merchandise looks completely different. Move sale items to the back to draw shoppers all the way through your store. Regularly review sales data to figure out your top consignors and your top sellers.
One of my jobs at Traxia is to stay in touch with shops through social media. I’ve been amazed at the number of consignment shops that can’t be found online. Even a few of our customers, who do slow but steady business, have no social footprint. Just imagine how much stronger sales would be if they were marketing? Today’s shoppers start by looking online. They don’t have the time to wander malls or Main Streets looking in and out of shops. Having a minimum of an active Facebook page is a must for success. Read 8 Facebook failures you don’t want to make to learn what not to do with your Facebook marketing. Again, if you don’t understand the basics of advertising, find someone who does.
A big reason many consignment shops fail is poor location. Just because the rent is cheaper doesn’t mean your sales will go farther. It could mean there will be no sales at all. Phibbs writes, “Yes, you can save 30% with a location that’s off the main road, but you’ll probably give that 30% back – and more – with advertising to try to get them there.” Choosing a poor location goes back to failure reason #1 and understanding business fundamentals. Take into consideration not only rent and overhead, but the demographics, work habits and even the physical traffic patterns of potential shoppers in your neighborhood. As Phibbs says, you never want to be “100 feet from success.”
Training. It’s a word employees hate to hear and managers hate to say. But, as Phibbs states, “Your job isn’t to be the owner. Your job is to manage and train your people so they sell better than you, consistently delighting and surprising your customers.” Turnover is a huge problem for small businesses. In order for your employees to invest their energy in your business, you have to invest time in them. After all, if you encourage and train your staff, you will have less turnover and ultimately will do less training. It’s a win-win for everyone. In addition, proper training makes your business “competitor-proof” according to Phibbs.
When was the last time you made a really big change in the way you do business? Have you moved to a better location? What about firing the sales people who aren’t working and finding the ones who do? What about upgrading your POS system to give yourself the freedom to manage your store from anywhere. (That was a shameless plug for SimpleConsign, by the way.) Phibbs says, “Many small businesses close because at some point the owner didn’t get enough leverage on themselves to change.” He goes on to explain that “Leveraging is associating your lack of action to the pain of the repossession of your car, the loss of your marriage or the stigma of closing your family business.” In other words, a business owner who won’t recognize change as the way to obtain a successful business, often winds up losing the business.
For more on running a successful Consignment Store check these blogs out:
A number of business owners we speak with will decide to open a consignment shop purely because they like thrift shopping. They know a good bargain when they see one. In fact, their basement is filled with them. They mistakenly believe this translates into becoming a business owner. The #1 way to be a successful consignment shop owner is to acknowledge you’ve opened a business, not enlarged a hobby.
Many shop owners say opening a consignment shop had been a dream they had had for years. Entrepreneurs in the resale industry often think it’s easier to open this type of shop because there’s no inventory to purchase. They quickly learn the truth. Even more than a dream, you need a solid business plan. Research the industry. Know your product. Study the competition. Read Starting a Consignment Business – Step 1. Remember, it’s never too late to revisit or create a solid business plan.
A phone conversation goes like this, “Hi, I want to ask about your software.” “Sure, tell me about your business.” “We’re signing the lease for the basement area under my sister’s hair salon. I’ve borrowed a computer from my cousin and I’ve handwritten all of our tags. Once we start making money, I’ll add an actual cash drawer.” I can’t tell you the number of times I’ve wanted to scream in the phone, “Please, please don’t open a business!” A successful consignment shop owner makes an investment. Not just an investment in time, but in money too. Purchase reputable software. Invest in quality hardware. Have reserve funds to tap into during the slow times. Create an attractive shop with in-demand merchandise in the best location possible. If you can’t do these things, perhaps now isn’t the time to open your shop.
A successful consignment shop owner understands that you can’t go it alone. You need a solid support system. Take time to hire top-notch full and part-time employees. Invest time in training them so you can trust them to work independently. Build a network with other shop owners either in your community or across the country. Find a mentor to counsel with for business and personal needs.
What is the saying? “If you build it, they will come.” Well, not when it comes to owning a store. In order to be a successful consignment shop owner, you have to recognize that advertising has to be a top priority. If you don’t have the skills or the time to market your shop correctly, find someone who can. There’s no excuse. You must have a vibrant, active social media presence. By golly, it’s free! Many younger aged students fully grasp the power of successful Facebook and Pinterest pages or Twitter and Instagram accounts. They would be happy to assist you for a small wage or even store credit. The other saying? “Get ‘er done.”
I can’t tell you the number of times I’ve read a Yelp review of a consignment shop and the reviewer states, “No one even spoke to me the entire time I was in the store.” Or, “This store is dingy and smells bad.” Or, my personal favorite, “When are you open? You never seem to be open when I come!” Details, details, details. These are simple ideas, but you would be surprised at the number of consignment shop owners who do not pay attention to the details.
It’s the old “which comes first, the chicken or the egg?” discussion. Did you chose your location and then determine your merchandise based on the location’s demographics? Or, did you decide your merchandise and then find a location with the people who want to buy what you offer? However you chose to begin, knowing who your customers are is the difference between being an unsuccessful vs. a successful consignment shop owner. Study the neighborhoods around your shop. Survey your existing customers to get better acquainted and find unique ways to get involved with your community.
A member of our staff once visited a consignment shop in another state. The shop owner was disparaging the fact that business was so poor. She said no one wanted to buy her clothes, but they constantly asked about her display pieces that were clearly marked with “Not For Sale” signs. Our staff member looked her square in the face and told her she obviously wasn’t selling the right merchandise. “Get out of the clothing business and get into the used furniture business!” A successful consignment shop owner knows exactly what their customers are looking for.
We often hear a shop owner say they’ve always done things a certain way and they simply can’t consider doing it any other. Really? Even though the way you’re searching for inventory, tracking consignor payouts or entering data is costing you time and money? No longer just “Ma and Pa’s Used Stuff” shops, the consignment industry today has evolved into big business. One only has to look at the success of The RealReal to realize there’s money to be made, but not if you’re unwilling to grow with the industry. Any business owner, especially if you want to be a successful consignment shop owner, must be flexible and willing to adapt.
Whether it’s unreasonable customers or consignors, someone has to be the one to hold the line. That someone is you. Make sure you have listed your policies clearly in writing and on your website. There’s no need to be disrespectful. Both your customers and your consignors are the life blood of your business, but you are the one who sets the rules. Your consignors should never be the ones to say what they will and won’t accept. Remember, stick to the rules. This applies to your employees too. Set a standard. Be a role model that your employees can follow.
For more on running a successful Consignment Store check these blogs out:
As you begin the new year, now is the perfect time to assess the overall health of your business. Where do you begin? How do you measure the health of a company? Like a doctor, your check-up for a healthy consignment shop needs to cover what’s working and what isn’t. Taking a closer look at last year will definitely give you a better view of the road ahead.
The best way to take an overall snapshot of your business success is with a SWOT analysis. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Don’t be the only one taking it though. You need to know what your key employees think as well. It’s a tremendous way to brainstorm about where you are in business and where you want to be.
This truly is one of the simplest ways to analyze your business as well as your ability to lead your staff. Not only does it look at what you have been doing, but it opens your eyes to opportunities that you may not have thought about before.
Start with your current strengths (because you need to look at the positives first, right?). This can include your current practices, the type of inventory you offer, particular employees, etc. What has been successful for you? Do you offer incredible customer service? Is your location and parking convenient? Are you meeting a need in your community that no one else does? List at least 3 – 5 strengths in the “S” box as S1, S2, S3 and so forth.
I hate to be the one to break it to you, but there are things you are not doing well. Be honest with yourself and encourage your employees to be completely honest too. Is your shop less than attractive with merchandise piled around? Lack of organization could be a serious weakness. Do your employees have a bad attitude? Are your hours so limited that you’re making people work hard to get into your business? List at least 3 – 5 weaknesses in the “W” box as W1, W2, W3, etc.
This one may require you to think outside the box. Get it? Outside the box? That little orange box? Okay, never mind. As you look ahead, consider all of the possibilities that are available around you. Is there a better location that just opened up? Can you partner with other consignment shops in your area to create an association or plan a bus tour? Perhaps, you need to create a buy outright or retail plan to add new store merchandise. This is where you let your imagination run wild. Fashion shows, DIY classes, a community sponsorship, etc. List as many as you can think of in the “O’ square.
Unfortunately, there are risks that threaten every business. Has a new resale shop moved into your area as direct competition? Are you running out of consignors who have new and interesting merchandise? At the end of the day, do you find sales are not outweighing the cost of overhead? List these in the “T” box as T1, T2, T3, and so on.
Once you’ve finished your SWOT Analysis, you’ll want to begin to map out your strategy. This will be where the outer gray blocks come into play. Investopedia suggests, “use it as a guide and not a prescription.” Keep it short and simple and don’t over analyze.
Your business has internal strengths and weaknesses, but also external opportunities and threats. A healthy consignment shop should be able to match its strengths with a corresponding opportunity. Assess each weakness to see if it poses a threat. Sometimes you’ll find your strengths outweigh the threats that currently exist. It really goes without saying, strengths and opportunities are always helpful and weaknesses and threats are always harmful. However, a healthy consignment shop can use their strengths to turn threats into opportunities.
It is true that the overall success of a business starts at the top. How healthy is the shop owner or manager? Here’s a great way to find out. Get your copy of Traxia’s Consignment Business Check Up.
Better health begins with less stress. Less stress comes from everything running smoothly and that includes your shop’s POS system. Wanna make life simpler? Choose SimpleConsign web based consignment software. Sign up for your free trial today!
You know the feeling. It’s that nervous hesitation. Should I open that email? Is it really safe to “Click here?” Did I give too much personal information? Today, staying cyber safe is always in the back of our minds. Protect your shop online. Follow these 5 practical steps.
Did you know the most common password is the word “Password?” It’s followed by the 2nd most popular password, “123456.” According to a 2015 report by ThreatMetrix, the point of login is especially vulnerable for cyber threats. Women, because they tend to use common words like their pet’s or children’s names, appear to be more vulnerable to hacking. When creating a strong password, make sure you add all of the following.
Change your passwords regularly no matter how clever you think you are.
There are several basic systems you can put into place to protect the information on your desktop immediately. “Ask Leo!” gives you the bottom line.
Wrongfully, Mac users assume their computers are safer. If you’re using a Mac for your business, regularly check for updates and make sure your firewall is running as well.
As part of your Employee Manual (which every shop should have), include a social media policy as another way to protect your shop online. Upfront, your Manual must state any discussion of their employment must be handled in person rather than online. Although disgruntled employees have the legal right to complain online about their working situations, make it understood that you are willing and eager to discuss it with them first. Add these other ideas to your Social Media Policy.
Choose a trusted email provider to send business emails. A provider has stronger filtering capabilities. Educate your employees about what to look for when opening an email that looks like Spam or a scam. Receive emails without images being displayed first. Once you know the email is from a reputable sender, click on “Display images below.” Often, images and logos are tied to Spam accounts.
If you have done these basics to protect your shop online, it’s time to move your data to the cloud. Hardware failure, theft of your computer, fire or flood damage, or a virus are just a few of the risks in keeping your data only on your computer. By converting that data to a web based system, you are automatically assured that your shop’s point-of-sale (POS) data is kept safe somewhere else. In a shameless plug for SimpleConsign, these are just a few of the safety features we provide:
Do you remember the emotions you experienced when you decided to open a store and the planning that happened afterwards? Remember the adrenaline rush just days before the grand opening? And the first week of store operations? Euphoria.
Thud! The honeymoon is over.
Store counts are low and continuing to decline. Your best employee just left for greener pastures (who happened to be one of your best friends). You are late on one rent payment. Your last holiday season was so-so, but 12% lower than the previous year. Is it time to close?
All is not well in paradise. You thought you had a sure thing. When a few family members said, “You’d be a great store owner. You just need to do it,” you believed them. But, as it turns out, you’ve learned there’s a lot to running a business. Marketing, merchandising, finances, people, administration. This was supposed to be easy. Instead, you’re ready to write 10 Reasons to Never Open a Resale Shop.
Is it time to close or continue the madness? That is the question. Perhaps there is a better question. Can I turn this ship around? And if so, how?
I’ve been an outsourced CFO since 2001. I was once a controller for a large regional retail operation. I serve multiple e-commerce clients. So I understand the business of retail, and I can understand the frustrations a store owner goes through in such a competitive environment. While my focus is biased toward operations and finance, the first thing I study when working with a struggling retailer is their marketing plan and how they are executing it. Solid marketing equals sales amplified.
Build it and they will come? Sure, that works in the beginning. Now, you have to start earning the customer visits if you not only want your store to survive, but thrive.
Let’s start with a simple income statement for a struggling resale shop. (All numbers are fabricated)
The income statement is for a recent 12-month time period, and note that the total store transactions (or customer purchases) are 3,848. That’s roughly 75 customer transactions per week or about 12 per day.
So my first question is, is it time to close or can we do better? We need to answer that by noting the simple equation for calculating total sales for a given time period (let’s stick to 12 months)
As the store owner and entrepreneur, are there more potential customers you are not attracting? If so, who are they? Where are they? And what’s the strategy to pull them in?
There is no holy grail to a perfect marketing system, but you have to start with a plan. It has to be simple, clear, easy to execute, and measurable. Rinse and repeat often. That’s the only way you’ll build up your customer base over time.
Average Purchases (Transactions)
Obviously, if you are selling furniture, the average number of customer purchases per year will be a small number (for example, about one customer purchase per year). If you sell clothing, you’re probably looking at 6-7 customer purchases per year. Accordingly, our store merchandising strategy plays a major impact on your repeat customer counts. If you don’t want to overhaul your inventory mix, you can enhance customer purchases through more special promotions throughout the year. You’ll just need to get creative.
Like total transactions, the average ticket is driven by your merchandising plan. Take note of specific items where there’s not as much price sensitivity to some of your best sellers. For a store that generates 5,000 customer purchases per year, every dollar added to the average ticket falls directly to the bottom line and into your pocket. This is where the math gets really interesting. While this may seem like major surgery, perhaps your merchandising plan needs an overhaul. That could dramatically impact your average ticket. Maybe you need a new product category or two. Your customers will be your best advisory board if you are thinking about this.
We could spend hours talking about the cost side of your financial business model which includes your average cost for your resale merchandise, labor costs, occupancy expenses, and so on. However, the cost structure is not a contributing factor that’s causing large retail chains to shut their doors. They are biting the bullet because customers have quit buying from those stores. When many store costs are fixed, a declining store count only spells disaster. Still, you need to keep an eye on the costs you can easily manage (like store labor) and you need to get good at the way you spend your smart money (e.g., advertising and promotions).
In short, you need to be able to clearly state what every cost is in your store operations. You need to know why those cost exists and what drives them. I’ve worked with many executives over the years who cannot answer those fundamental questions.
I think the answer is simple. It’s time to close when you have exhausted every possible method to increase one or more parts of the top line sales equation. Generally, that means you’ve done everything to figure out how to get more customers in the store and how to get them buying more often. If you cannot figure that out, then the answer is simple. Yes, it’s time to close.
But don’t throw in the towel without thinking about your sales issues thoughtfully and carefully. By the way, I’m pulling for you. I want your decision to be based on logic more so than emotion.
I have to fess up…I’m a fan of The Walking Dead. I became an avid follower when my teenage son was still at home. He’d invite me to sit and watch the show with him. What Mom can resist an invitation to spend a little time with her 16-year-old son? However, I got hooked and 5 years later, he’s away at college. Now, I schedule my entire Sunday evening around the show. It does cause me to think about how unprepared I am for a disaster (not necessarily zombies) and how unprepared most shop owners are too. Alas, the need to develop a disaster recovery plan that even Rick on The Walking Dead would be proud of.
The Red Cross provides a wealth of disaster-preparedness supplies. Order Emergency Backpacks that can easily be stored in your back office. Also, have at least one member of your team certified in CPR. Check your local Red Cross for class listings. Their site lists a variety of extra supplies they recommend you have such as water, matches, extra clothing, etc.
Check out ready.gov for a ton of information on a disaster recovery plan. Their plan prepares you particularly for natural disasters. They offer a wealth of information from planning ahead to coping with the aftermath. The site offers suggestions for a basic disaster supplies kit and a basic first aid kit.
A plan is only as good as the paper it’s written on if it isn’t communicated. Brief your staff completely on your disaster recovery plan. They need to know what to do if the disaster occurs while at the shop or if it occurs during off hours. If the disaster affects your entire community make sure you have a way to communicate with your staff members so you’ll know they are safe. Since texting uses less bandwidth than actual phone calls, set up the ability to send a group text. It will be the easiest method of communication. Consider adding the number of their close relative or friend too. List them under ICE (In Case of Emergency). The psychological toll a disaster can take on you and your staff can be overwhelming. Their well being is of course your first concern.
Last but not least, communicate with your consignors/vendors as soon as possible. Use email, social media and if possible, texts to clearly state the extent of damage and how it will affect them and their items. When Trader Joe’s in New Jersey had their roof collapse under more than 2′ of snow, they quickly communicated with their 160 employees and loyal customers. They stated they would be rebuilding in a “realistic time frame.” They even attempted to find employment for interested workers at other locations. Your disaster recovery plan needs to take you all the way through the beginning to the end so you meet everyone’s expectations.
It’s February and we survived the first of the dreaded “J” months of retail. It’s time to not only look forward, but to take your business to the next level. This time of year, it’s common for my phone and emails to be ringing with fellow store owners wanting to talk about expanding their business. It sounds like the next step doesn’t it? After all, you have successfully grown a single store from a dream in your head, to a successful business that is paying the bills and paying you. Everyone is telling you how wonderful your store is, and the only thing better would be to open another one in their area. In your mind, you start seeing how you could easily expand your shop and open another location across town, or even the next city over. You even know the perfect place that’s available and the rent seems reasonable. You have already done the hard work, right? After all, you created a brand that didn’t exist before and gained the trust of not only your customers, but your suppliers. This is a slam dunk. It’s Leap Year and the stars are aligned and you are getting ready to take the leap and expand your shop.
It’s time to go back to being a kid. What did your parents tell you when they taught you to cross the street? Always Stop. Look. Listen. Think. As adult, educated business people we are not that different from our kids. When contemplating expansion, stopping and thinking can be the difference between failure and success when expanding a business. A bad expansion can not only ruin the second location, but might destroy the first too.
Can you take a vacation? I’m serious. Can you take a day, a week, or a month off from your current store? If you haven’t stopped laughing at this mere suggestion, you are not ready to expand your shop. Your current store needs to be “grown up” enough to not need you. Everything can’t be running through you. Even if you are the ultimate manager, you have to let go enough to let your team make some mistakes and learn from them. Hold them accountable, but let them make decisions. When they come to you with questions, don’t give them an answer, ask them what they would do. If it is 80% of your “correct” answer, let them do it.
When was the last time you had your eyes checked? Yes, really, because as they say, it might be time for a new prescription. When you open a new location, you will instantly be seeing double. Double expenses that is. You literally have two bills for everything; rent, electricity, internet, phone, payroll, and more. At the same time you need two of everything; more racks, counters, computers, open signs, and even the most basic of work place necessities, a second refrigerator, microwave and most important of all, a second coffee maker.
I know you remember opening your first location. You were really inventive and opened it on a shoestring. As sales grew, so did the brand image you were able to portray. Over time, you improved everything from your paint, to your flooring, to your racks. When you open your second store you will need to maintain your current image from the start. Even the best budgets I have seen for opening a second location tend to underestimate the cost by at least 50%, and some are off as much as 300%. How can the budgets of an experienced business owner be off by so much? We’re not really any different from our customers. Think about why many of us end our prices in $.99 cents. It’s not hard, that $9.99 item is really only $9, not $10. Well, in just that example, you are now off by 10%. It’s great when we are selling, but not so great when we are writing the checks.
The most important lesson I tell all store owners who are looking to open another location is to go and ask their bank for a line of credit. The first response I hear is, “I don’t need it, I am going to self finance. My friend or relative is going to loan me the money” or “It’s in the news all the time how stingy banks are with money. They won’t give me a loan.”
There are several realities here. First off, don’t borrow from family and friends. The simple reality is it just makes Thanksgiving dinner taste bad. Second, even if you don’t need the money and I really hope you don’t, asking for your bank to give you a loan forces you to get naked and share your books with an “outsider.” This “outsider” will give you a free outside evaluation to see if your business is healthy enough for a bank to take a chance on you. If they approve it, that’s a good thing. Emergencies happen and that line may be helpful someday. If on the other hand, they are not willing to give you a line of credit, that’s good too. It shows that your business may not be ready to expand, even though in your mind, it is.
I agree with bankers, “Numbers don’t lie, people do.” Don’t let the lies you are telling yourself force you into expanding your shop too quickly. Instead of being the owner of two stores, you may find yourself the owner of none.
Remember Stop. Look. Listen. Think before you expand your shop.
Keep on smiling,