November 2008 Newsletter

HOW TO BE PROFITABLE DURING BOTH GOOD AND BAD TIMES
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Right now the economy is a mess and everyone is wondering what is going to happen in the coming months. You are right to be concerned.

Whether the economy is GOOD or BAD, the retailers who will do well are the same ones. They are those retailers who keep their inventory under control either by use of a formal Open-To-Buy or some other means, keep their expenses under control by use of a formal budget and have a motivated selling staff. These retailers are also not carrying an excessive debt load, with it’s accompanying interest expense. If you are one of these retailers, congratulations. I do not doubt that you will come out of this current recession doing well.

However, if you have too much inventory, expenses that are too high, too much debt, and a selling staff that just stands around waiting for a customer to come in the door, you are in trouble. Unless you change the way you do business, and do it quickly, you might not be around for the business turnaround that is sure to come.

Do you know where you want your store to be 12 months from now? I'm sure you would like to increase your bottom line - - But, do you know exactly how much you want to increase it to? Do you know how are you going to do it? By increasing sales? By decreasing expenses? By increasing gross profit through better merchandising?

A formal, written business plan will help you to focus on these questions so you can determine the best way for your store to reach its goal. Unless you write down your plan on paper, refer to it often to see how you are doing, and make changes as needed you will never reach your goal.

If you have never done any formal planning you may be asking yourself how anyone can possibly plan for the future. There is no crystal ball to help anyone accurately foresee the future and there are many uncertainties that are impossible to foretell. Strikes, fires, new decisions by competitors, shifts in the economy - - these all have the potential to upset your company's plans. However, by using all the information that you do have available - - your store's historical figures, the news, trade organizations, other retailers -- you can develop a good set of plans.

Well-developed plans help set the direction the company will take in the future and provide the opportunity to change direction if needed. By comparing actual to planned figures you will be able to highlight trouble areas and make needed changes so the adverse effect on the bottom line is minimized.

A good plan must be realistic, achievable and encompass every facet of the business. When working with my clients there are several tasks I require them to do every year. They are:

1. Prepare an annual Gross Margin Plan
2. Use an Open-To-Buy
3. Prepare an annual pro-forma Income Statement (budget, done by month)
4. Prepare an annual Cash Flow Projection (done by month)
5. Track the productivity of their selling staff

I am going to give you a very brief summary of each step this month. In coming months I will go into more detail with each step listed above.

Gross Margin Plan
The Gross Margin Plan is an annual plan that gives you the ability to “look into the future” to see if any changes need to be made to your classifications now, before the year begins. For example, once you have your plans on paper and have reviewed them, you may find that you have planned sales too low in a particular area. Or, you may see that a specific class is a good candidate for elimination due to it’s low Initial Markup and high markdowns. You may also see the need for an additional classification or more.

The Gross Margin Plan contains a lot of information. Included, by classification, are annual sales, sales contribution % when compared to the total company sales, Initial Markup % that you believe you can achieve, Markdown % plan, Stock Turn Rate goal, average inventory, Gross Margin %, Gross Margin dollars and something you may not have heard of before, the Cumulative Gross Margin. This is all very useful information to the store owner and buyer to use to review the performance of each classification - - before the Open-To-Buy is set up and before the pro-forma Income Statement is developed.

Once the Gross Margin Plan is set to your satisfaction, the data included is then used in the preparation of the Open-To-Buy and for the company’s budget (pro-forma Income Statement)

Open-To-Buy
The Open-To-Buy is very simply the buyer’s buying budget and should be used to ensure you have the “right” amount of inventory to support your sales plans. The goal of the Open-To-Buy is not to keep you from buying! The goal is to ensure the correct inventory level so you do not have too much or too little inventory.

The Open-To-Buy is a tool. It is not something etched in stone. That is why, when working with my clients, I recommend revisions during the year as needed.

Pro-forma Income Statement (budget)
The annual Gross Margin Plan and the total of the Open-To-Buy give you most of the information you need to complete the Cost of Goods Sold section of your budget. All the additional information needed is: Sales Discounts, Purchase Discounts and Freight-In.

Once the Cost of Goods Sold section has been completed to your satisfaction, it is time to plan expenses. Expenses are not hard to plan. I usually recommend that clients start with their actual numbers from last year. Then, you can look at current conditions and adjust the numbers as needed. For example, you may have heard on the news that your electric company will be increasing rates by 15%. That means that when you plan this year you will want to increase last year’s numbers by 15%.

Once all the numbers are in place it is time to put them together and make sure you are planning a profit. If it shows a loss it is time to go back through your expenses to see which ones can be decreased or even eliminated.

Cash Flow Projection
After the Pro-forma Income Statement is completed to your satisfaction, the next step is to prepare a Cash Flow Projection. You must always keep in mind that Profit does NOT equal Cash. And you must have cash to stay in business.

The method I use is to start with Net Profit and make adjustments as needed to convert it to cash. For example, depreciation is an expense but does not involve the use of cash so that is added back to Net Profit. In the same way, any payments to loan principal do not show up on the Income Statement (only interest does). So, any payments of loan principal need to be deducted from Net Profit.

Sales Staff Productivity
No matter how well you buy and merchandise your store, you must depend on your sales staff to actually make all the sales. This means they must be knowledgeable and motivated. As the store owner you can not just assume they are doing the ‘right’ things. Just as you manage your inventory by looking at productivity measurements such as Initial Markup, Markdowns, Stock Turn Rate and Gross Margin you must also look at the productivity measurements for your selling staff. These are: total sales, number of items sold per sales transaction, number of sales transactions per hour worked and dollar amount of average sale.

Summary
This is the overview of what is needed to be successful. You must control your store or you will just drift along and not accomplish what you want.

QUOTE OF THE MONTH
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“Failing to plan is planning to fail”
proverb from Bible

“Expect the best, plan for the worst, and prepare to be surprised.”
Dennis Waitley, American motivational Speaker and Author of self-help books.

OCTOBER SALES SURVEY
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First, THANK YOU to everyone who participated in our survey.Your participation makes the results meaningful. To remind everyone, this survey concerns October sales.

OPEN-TO-BUY SERVICE
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Control your inventory and increase profit with TRMA's Open-To-Buy Service starting at just $300 a month.

It is critical for the retail store that inventory be controlled so there is not too much or too little. We have been providing this service to retailers for many years, and at a price even the smallest retailers can afford.

For more information, call us toll free at 1-877-206-1299, visit us on the web at http://www.the-retail-advisor.com/open-to-buy.html, or send an email to LC@the-retail-advisor.com.

TELE-SWAP GROUPS
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Join a Tele-SWAP Group to talk to other retailers like yourself! The questions and topics we have discussed in recent sessions are numerous. A few recent examples are:

"How are you stimulating business now?"
"What benefits do you offer full-time employees?"
"Discussed HSA insurance plan one member started a year ago and savings generated."
"What do you see as the direction for merchandising your store in the next few years?"
"How do you find a good in-house tailor and at what pay scale?"
"What has been your most successful line thus far this year? Most disappointing?"

If you would like to discuss the types of issues listed above, and others, with retailers who are similar to you, but far enough away they are not competitors, give us a call at 1-877-206-1299 or on our web site at http://www.the-retail-advisor.com/peer_groups_tele-swap.html. Then you can complete an online application. Once I get your application I will contact you about joining a group to take part in a monthly one- hour teleconference call. The biggest commitment will be the one-hour a month for the call. The cost is minor at just $180 for a 6 month commitment (just $30 a month).

There are so many retailers around the country who are isolated because they are a small independent retailer. This service gives you an opportunity to talk with others in a similar situation without having to worry about giving away any information to your competition. Get the help and advice you need to be moresuccessful without having to leave your store.

Click on the link above and join a group today!

KEEP YOUR EMPLOYEES HONEST & INCREASE YOUR BOTTOM LINE!
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Studies have shown that almost half of all your store's shrinkage is due to employee dishonesty!

If you can reduce shrinkage by 1% that is an additional 1% of profit for you. As the owner it is your job to provide the procedures, checks and balances to keep your employees honest. Also, consider that as our country plunges into this recession, normally honest people may become desperate. Financial need is one of the main reasons given for attempting theft from an employer. Make sure you are doing all you can to help avoid temptation before it strikes.

As a former controller for a 5-store chain of family apparel stores and with my experience working with retailers around the country as a retail management consultant I have developed a manual to help you with this. It is our "Internal Control Manual" that covers all aspects of a retail store's operations. It is set up in an easy question and answer format where a Yes answer means things are OK and a NO answer means you may have a problem that needs further checking.

To get a copy for your store, for just $95 shipped Priority Mail, visit our website at http://www.the-retail-advisor.com/internal_controls.html.

Do not wait until you discover that a trusted employee has stolen $70,000 from you (like a retailer I know had happen to him last year). Take steps now to make sure your merchandise and cash are as safe as you can make them.

RETAIL JOB DESCRIPTIONS
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Well thought out and developed job descriptions should be the documents you use as a basis for interviewing and hiring new employees and also for making sure your employees are doing their job as it should be done. To help you with this time-consuming project, TRMA has developed very detailed job descriptions for almost all positions in a retail store in WORD so you can easily copy them to your computer and personalize them to your unique situation. The job descriptions are available on CD for only $25, including shipping. The set includes the following descriptions:

1	Profile Of The Perfect Retail Employee	14	General Manager
2	Basic Position Description For All Employees	15	Merchandise Manager
3	Accountant	16	Office Manager - Bookkeeper
4	Accounts Payable Clerk	17	Store Operations Manager
5	Advertising And Display Manager	18	President
6	Assistant Store Manager	19	Shipping & Receiving
7	Buyer	20	Sales Manager
8	Cashier	21	Sales Associate
9	Controller	22	Store Manager
10	Credit Sales Manager	23	Store Manager (for stores with a General Manager)
11	Credit Controller & Collector	24	Tailor-Head
12	Department Manager	25	Tailor I
13	Display Manager	26	Tailor II Or Seamstress

Most job descriptions are 2-4 pages long. Your investment is just $25 for the complete set, including shipping. To order, mail your check to the address below and we will mail the job descriptions to you:

Job Descriptions
The Retail Management Advisors
510 Red Oak Street
Allen, TX 75002

WHAT WE DO . . .
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o Monthly Open-To-Buy Service
o  Open-To-Buy Implementation on Your System (if available)
o  Merchandise Performance Evaluation
o  Shrinkage Control
o  Development of Incentive Plans
o  Development of Job Descriptions
o  Seminars On Retail Subjects
o  Financial Analysis
o  Financial Budgeting and Cash Flow Projections
o  Computer/POS System Evaluation, Selection, Usage
o  Policy and Procedure Development
o  Lead Tele-SWAP Groups (Share With A Peer)