BrainTrust Query: Is Red The New Black?
By Ted Hurlbut, Principal,
Hurlbut & Associates
This discussion article
was adapted from Ted Hurlbut’s blog, which appears both on the Hurlbut & Associates
website and on Inc.com.
I was speaking with the
owner of a small women’s specialty store the other day. We were discussing
the state of her business when she said something that made me pause for
“I’m concerned that
red may be the new black. I mean, what if the new baseline of my business
is going to be 20 percent below where I’ve been? At 20 percent down, I’m
in the red, but if that’s the new baseline, I’ve got to figure out how
to run in the black at that level.”
I suspect it’s a question
that many small, entrepreneurial retailers are asking themselves. What
if red has to be the new black?
Every retailer, large
and small, has to plan for this possibility, and they need to plan for
it now. In many cases, losing 20 percent or more of your revenue base will
require you to fundamentally re-think your business strategy. Here are
just a few things to consider:
How will margins be affected?
The current decreases most likely have been accompanied by seriously eroded margins,
as markdowns have exploded to keep inventories in line. It’s probably not prudent
to assume that you’ll be able to maintain your previous margins in this new environment.
How can you generate more margin dollars from this revenue base? How will your
promotional posture have to change given the new realities? How can you protect
your pricing integrity?
What levels of expenses can be sustained?
What does this mean for your marketing budget and advertising? Can you continue
to sustain the current channels? How do you re-strategize your marketing?
As I’ve written before, my sense is that current marketing efforts should
focus on your best customers, who are less expensive to reach than potential
How much payroll can you handle?
How do you manage payroll
reductions? Do you reduce payroll through cuts in head count, or cuts in
hours worked or cuts in pay, or some combination of the three? How will
this impact your customer experience?
How does this change how you merchandise?
You’re going to need to reduce your inventory levels. How will this change
your store layout and visual presentation? How will this affect your
assortments? Will you become narrower but as deep, or shallower but as
broad? Will you alter the mix between destination and impulse items?
Will you use different strategies for different categories? How
will this impact how you source?
Of the advice given for small businesses trying to weather the recession,
which (at their peril) do you expect they’ll ignore the most? Which changes
in business strategy are retailers more likely to gravitate toward? Which
will they need the most help with from third parties and trading partners?