Now What Do We Do? Living With the Industry’s Success

 

But now, you are face to face with the results of your own success. The consolidation we knew would eventually come is here. Three years ago, it was an intellectual concern for the future. Last year we could see it happening, but were hopeful it would be gradual and, therefore, manageable. This year, in the wake of the trade show season, it’s a lot like a cow pie dropping on an ant hill; sudden, stinky and overwhelming.

 

I couldn’t back this up statistically, but my travels and conversations tell me that a lot of companies lost money last year and are poorly positioned to carry themselves through another season. I’d guesstimate that retailers typically committed no more than half of their open to buy for the season and are expecting to rely on closeout product available during the season. Brands, including a couple of the larger ones, have been disappointed by their preseason orders. I view being positioned to do as much business in units as you did last year as a big success.   I suspect that quite a few smaller brands (hard and soft goods) are past disappointed and approaching scared.

 

There are a lot of deals being discussed among companies. Buyers want to give themselves the critical mass and product mix they think they need to be a successful industry player. They also see it as a time to pick up good brands cheap. Most sellers are making deals out of necessity. Ride has never made a secret of the fact that selected strategic acquisitions were part of its plan. The Silence board brand was acquired by Straight Line Manufacturing. I think you can count on some more announcements over the next couple of months. 

 

Everybody that’s having a tough time isn’t going out of business. But some are. I’ve talked to too many companies who’s strategy for surviving the consolidation is to “hunker down until it’s over.” The problem with that particular strategy is that they’ll have to hunker down a hell of a long time; by definition a consolidation isn’t over until smaller players without clearly defined market niches are gone.

 

It’s also not appropriate to assume that “getting through” one more year will be enough. Over capacity, which I see as the primary cause of the consolidation, isn’t going to go away that quickly. As soon as I get my crystal ball working again, I’ll let you know exactly how long it will take.

 

Well, I hope you enjoyed that little dose of doom and despair. Now let’s talk about what you can do about it.

 

The funny thing is that when times get hard and things get chaotic, there are always opportunities if you can just raise yourself out of the paralysis and myopia that is always the result of short term pressures. I’ve seen it time after time with companies in difficult transitions and been the victim of it myself. The effort, time and focus that it takes just to manage from day to day when money is tight takes most of your energy. You are so busy hiking through the forest that you never find the perspective to climb one of the trees and see if you’re going the right way, or are even in the right forest.

 

The good news is that the tougher things get, the less you have to lose my trying. You’re probably better off dying in a fall from the top of a tree than starving to death hiking through the wrong forest.

 

We all come to business with a clear sense of what “makes sense.” Forget it. Pull out all the apparently crazy ideas you’ve rejected out of hand and look them over. Put a sock in the mouth of the little voice in your head that says “We can’t do that.”

 

It’s time for absolute openness and absolute honesty with the people you work with. Listen, have respect for everybody’s crazy ideas and don’t reject anything out of hand. Stop worrying about people finding out things ain’t great right now. They already know it. Chances are they will respect you for your honesty and for dealing with it. Get the all the big uglies on the table so you can deal with them. The companies I have least confidence in are the ones who tell me everything is going great (“Oh yeah, we’re booking lots of orders!”) when I know they aren’t.

 

·         Cut that expense you didn’t think you could do without. What have you got to lose?

 

·         Ask that supplier for better terms and lower prices. All they can say is no.

 

·         Get rid of that old inventory at whatever price. Take the income statement hit and generate some cash. It’s not going to be worth more later.

 

·         Renegotiate your lease. Tell your landlord you need the rent to come down by 15% if he wants to have a viable tenant. Get him to give half of your security deposit back. 

 

·         Let people go if you have to, even if they are relatives and friends of long standing. How else are you going to preserve the company and jobs of the remaining employees (including yours).

 

·         Cut everybody’s salary 10%. And never pay payroll if you can’t pay the associated payroll taxes. Those taxes are a personal obligation.

 

·         Tell your creditors you can’t pay them now. Explain what happened and what steps you are taking to change things. Be honest with them. Keep them informed. Ask them for a discount and make a deal.

 

·         Get rid of the 800 number. Call the phone company and tell them you want a better rate per minute. You’ll probably get one. I did.

 

·         Stop making nice to people who owe you money and haven’t paid.

 

·         Raise your prices. Now. If you can’t survive with in your current financial circumstances anyway, what do you have to lose?

 

If you’re shocked by that last one, good. I want you to be. Maybe it’s not the right step for you. But there are a dozen other equally crazy sounding ones that are. All you have to do is think of them.

 

All these tactical steps will help as long as they are part of a feasible, overall plan. Don’t tell me it’s impossible. I’ve implemented all the steps above at one company or another. Remember that the power of enhancing revenue or reducing costs is in how quickly you do it. $2,000 a month becomes $24,000 over the period of a year.

 

So much for tactics. Unless you’ve got a workable strategy none of the above matters. Fundamentally, there has to be a reason why you are going to be able to successfully compete. If you can’t specifically define who your customers are and why they will buy your product instead of a competitor’s, you don’t pass go and you don’t collect $200 dollars. If you can’t differentiate your product and your company, you have a limited chance of being a survivor.

 

Ask 200 customers why they bought your product or why they came into your store. Listen to them carefully. Tabulate the responses and looks for trends and consistencies. Visit 20 other stores who are your customers or competitors. Have a check list of things you want to ask or note. What are they doing better or worse than you? How are they displaying your product?

 

Developing an effective strategy doesn’t result from taking everybody to a nice hotel for three days of meetings. It comes from a tedious process of collecting and studying meaningful information. Strategic planning is the process of looking at the same information your competitor can get from a different perspective and making better decisions as a result.

 

So you think you have identified a competitive advantage and have a strategy to carry out. Is it worth the effort?

 

Envision your store or company as you want it to be three years from now. What will it’s sales be? What will its customers think about it? How hard will you be working and what you will be earning? How much risk will you be taking? Ask the questions that are relevant to your circumstances.

 

Now look where you are right now. What resources will you need to get where you want to be? What are the risks? This is part of a much more detailed process but, in general, does it look like what you have to go through to get where you want to be is worth the time, risk and effort? Can you get the resources you need? If not, why are you considering doing it?

 

Nimble, aggressive companies that can identify opportunities, have a competitive advantage they understand, and have made an explicit decision about what they want to achieve and how they are going to get there will be the survivors. Don’t starve marching around the wrong forest. Climb the tallest tree and see which way to go even if you risk being killed in a fall.