Posts Tagged ‘consumer’

A Business Must Pry Loose Consumer Savings

August 4, 2010

by Doug Smith, President, The Woodhaven Group

It has been widely reported that businesses of all sizes have accumulated cash over the last year to reduce debt and have a cash flow cushion going forward.

Someone else is doing the same thing.

The consumer has decided that saving money is a good and needed strategy for themselves and their families.

The US government reported that consumers saved 6.4% of after tax income for the month of July.  This trend in increased savings has been happening now for a few months.  Compare this savings rate to 1%+ prior to the economic chaos that started in 2008.

Why is the consumer deciding to save more at this point in time?  Here are a few reasons as I see them:

  • It is no secret that consumers are trying to reduce any and all debt they have.
  • Uncertainty plays a major role in consumer psychology.  The consumer is telling themselves that caution is the best strategy and that means saving dollars until they can get a better “feel” on the future of the economy.
  • The consumer is becoming wiser.  Part of what got the consumer and the country into economic trouble was spending on unnecessary products and services as well as houses bigger than were needed.  You can add to that a few vacation homes.  Now the consumer is still spending, but it is on more necessities and less on “feel good” items with no lasting value. Some of the remaining dollars is going into savings.

In spite of this new pragmatic approach by the consumer, businesses still have to generate sales.  The consumer has not stopped buying. They are just buying less and being more cautious.  A company needs to capitalize on that mindset.  Here is how to do it:

  1. Know who your target customer is and channel your available marketing dollars at that customer.  As  a business, you do not have the luxury of using a shotgun approach.  That only wastes cash flow.
  2. Know which of your services or products is most desired at this time by your target customer.  Don’t make the mistake of emphasizing secondary products, styles, colors, sizes, or categories in your offering.  Lead with your strength.  Do research to find out what that is if necessary.
  3. The consumer right now appears to only be buying bargains.  So give them a bargain.  Find a way to promote your most wanted items to the target customer at a price point they cannot refuse. Then cross market and up sell to increase the average sale and bump up margin.
  4. Offer the best guarantee or warranty that you possibly can.  The consumer is not very trusting right now.  Let them know that once they finally decide to buy that they can have peace of mind that their purchase will not be a mistake.  Trust and credibility in the seller is currently an important part of the buyers decision-making strategy. 

The consumer has money to spend.  And they will spend it given a good reason to do so.

It is up to the owner or CEO to give the consumer a valid reason to dip into the increase in savings and spend it with your company.

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Use This Depression Era Program To Increase Business Cash Flow

July 9, 2010

by Doug Smith, President, The Woodhaven Group

Layaway programs are helping both consumers and retailers who are cash strapped.

During the Depression of the 1920s and 1930s, layaway programs were started to help shoppers buy items for Christmas from retailers.  For a small down payment, the retailer would hold the merchandise while the customer made weekly payments.  When the final payment was made the retailer handed over the merchandise to the happy consumer.  

As credit cards became more popular, layaway programs were eliminated.  Today, more and more consumers are either cutting up their credit cards or reducing the amount charged.

Smart retailers and businesses are reinstating layaway programs as a method to generate sales and help the shopper’s cash flow as well as the cash flow of their own business.

It’s amazing the variety of products and services that are using layaway programs.  A few I have seen are for:

  • Furniture
  • All types of big-ticket apparel
  • Jewelry
  • Vacation trips
  • Tickets and lodging to music festivals
  • Toys
  • Televisions
  • Cosmetic surgery of almost any type

In my opinion, one of the leading retailers using layaway most effectively is Sears and their subsidiary, Kmart.  To get ideas how to structure your own layaway program go to Sears layaway site right here.

Is layaway the right program for your company?

I would suggest doing your own research, talk to retailers and businesses who have tried layaway and test it on a few products or services.

You just may find this is one more tactic in your sales and pricing strategy that will help increase your overall cash flow.

The Personal Value System Of A Salesperson Can Quickly Kill Your Business Cash Flow

June 20, 2010

by Doug Smith, President, The Woodhaven Group

One mistake many sales people make when selling to a consumer is to project their own personal value system into the selling process.

That is a major mistake that can be the difference between closing the sale or being disappointed with the outcome.  The result is no sale and no addition to your business cash flow.  The prospect ends up buying  from the competition and your company needlessly lost revenue.

I have seen many salespersons not want to build the sale because they personally believed the total price would be too much.  In other cases where financing the transaction is an important option, I have seen salespersons not quote monthly payments because they never personally finance any purchases and do not believe anyone else should either.  Others don’t offer the product in a certain color because they personally do not like that color.  One retail salesperson I knew did not present one line of clothing to customers because she personally did not like the designer.

This happens in sales forces of all kinds and can be a cancer that will kill sales and valuable cash flow.

Sales managers need to train their sales forces to ask questions and gather plenty of information from the prospect about what the prospect wants and needs.  Then tailor the product or service offering based upon that information only.

The next time you see the sales volume of a sales person drop consider that one option may be that they are projecting their own personal value system into their selling process. Correct it and  both your sales and cash flow will increase.

Create Cash: Be Your #1 Vendor

June 17, 2010

by Doug Smith, President, The Woodhaven Group

Small and medium sized businesses should borrow a strategy that is being used by some of the largest companies over the last 18 months.

Large companies have been accumulating major amounts of cash.  Some of this has been used to pay down debt and improve their balance sheets for the analysts and shareholders on Wall Street.  An even larger reason may be the concern about the economy in the future.  The smart managers want a cash cushion on hand to offset unexpected surprises in the near term.

While certain parts of the US economy have improved and seem to be trending upward, many believe we are still not out of the woods.  With massive federal and state debt, a very cautious consumer and events like the oil spill it becomes harder to predict the future.

What should you do?

As an owner or CEO of a small or medium sized business I suggest creating a cash reserve like the larger companies.

How do you do that?

When planning who is getting paid each week include your own company in the accounts payable schedule.  Set aside a small amount each week in a stand-alone account to act as a corporate nest egg if and when the time comes that you will need the backup cash.

You will be surprised how a small amount set aside each week will add up over time.  Don’t be tempted to dip into the account to fund a discretionary trip or new vehicle.  It is an emergency cash back up.  Keep it that way.

If the big companies can do it, so can you.

Reduce Surprises With A Rolling 3 Month Cash Flow Projection

May 25, 2010

By Doug Smith, President, The Woodhaven Group

“Cash is more important than your mother.”  A west coast business professor once said that and as a former CEO I agree.  Just for the record my mother would agree with me.

With all the volatility occurring in the economy it is very difficult for any business to plan ahead.  We see turmoil in Europe that may reduce exports, a consumer only beginning to spend again, and private and public debt at uncomfortable levels to say the least.

What is an owner, CEO or senior manager to do in an environment like this?

First, I would remind you that your company runs on cash.  If you run out of cash you either have to replace it or go out of business.  Therefore, it is best to anticipate any peaks or short falls in your near term cash position so you do not find yourself making crisis management decisions when, for instance, it is time to make payroll.

The best tool to use is a rolling 3 month cash flow projection that lists your anticipated inflows and outflows of cash.  In otherwards, where is your cash coming from, where is it going and how much do you have left over?

In my opinion, this should be a monthly cash flow projection that is updated weekly.  If cash is extremely tight and unpredictable then a rolling weekly cash flow forecast is even better.

Meet weekly to update the projections with key management team members.  A side benefit will be a clearer understanding by everyone where the most productive use of cash is occurring.  I found this to be a positive energizing exercise for my management teams.

What to do if you see a shortfall in cash coming?  Here are a few options:

  1. Have a line of credit in place with your bank and use it as needed.  That is what it is there for.  Your banker should receive updates of your cash flow so he can anticipate the request and payback.  He will be impressed how you are managing your cash situation.  He will probably wish his other clients were doing similar calculations.
  2. Speed up payment of accounts receivable.  There always seems to be late payers and being aggressive in collecting may be all the added cash you need.
  3. Get extended terms from your key suppliers.  Rather than just delay paying, I have found it best to ask them for a temporary extension on terms.  If you have been a good customer and paid as agreed this should not be a problem.
  4. If you are a manufacturer one solution may be simply to return old inventory to your supplier and get a credit.  Apply the credit and it may actually offset a portion of the next invoice due.
  5. Cut expenses.  No doubt in the weekly management meetings,  areas will be identified where expenses can be reduced without hurting revenue. As CEO or owner you may have to make the final decision when and where to cut in order to get the action that needs to be taken.   

A rolling cash flow projection is one of the best management tools there is.

Be proactive.  Anticipate your short-term needs and you should not have any cash flow surprises.

Take Aggresive Retail Clearance Markdowns To Increase Cash Flow

April 20, 2010

by Doug Smith, President, The Woodhaven Group

Retailers every year take big risks and invest huge sums of cash in inventories in the hopes they have identified this season’s “hot” style wanted by consumers.  These “hot” styles may be in fashion apparel, home furnishings, accessories, electronics, or even shoes.

Regardless of product, all types of merchandise share a few common traits.  The inventory setting on the floor is usually paid for and at that point it is only worth what someone will pay the retailer for it.  The goal is to have fast inventory turnover and put the cash back to work with a flow of new fresh exciting styles for the next season.  The buyers who can correctly identify these trends are worth their weight in gold.  However, in spite of how good the buyers are, a fact of life is that most merchandise is marked down and not sold at full price.

If an item does not move at full price the goal is to find the “right” price point and convert the merchandise into cash.  The faster a retailer can do this the better will be their cash flow and overall return on investment.

There are 3 types of markdowns:

  1. Preseason promotions to beat competitors and, in some cases, to identify what the hot items will be.
  2. Promotional markdowns taken in season to support traditional store wide events or annual events like Christmas Sales.
  3. Clearance markdowns to liquidate remaining inventory  

This last type of markdown, the clearance markdown, is where many retailers hurt their cash flow the most.

The reasons for clearance markdowns can range from simply buying the wrong styles to buying too much of a good item to buying a hot trend as it is ending.

There are strategies that can minimize the cash flow and profit impact of clearance markdowns:

  1. Don’t fall in love with the item.  If you personally made the selection it is hard to admit you made a mistake and you possibly might be the only one who likes it.  Take the markdown and forget about your pride.
  2. Don’t wait until some pre-ordained period to take the markdown.  If you bought 10 of an item and not one sold after a reasonable period you need to get it marked down.  The customer has spoken.  The item will not get better.
  3. The first markdown is critical.  Get the item to a price that will likely move it out the door.  Some retailers have a fixed markdown pricing chart they follow.  I don’t agree with that.  Some items need to be priced deeper than what is on some chart.
  4. It is likely you have identified “magic” price points that move clearance items.  Group various original price point items into these clearance price points and you will see inventory sell quicker.
  5. Many retailers refuse to markdown an item below what they paid for it.  Forget that strategy.  Even if the amount you receive is small you will be able to take those dollars and immediately invest it in fresh new merchandise that may sell at full price. You can then reinvest these new dollars in even more merchandise that could again sell at full price.   However, none of this can happen if you stubbornly hold onto an item because you refuse to lower the price below cost.
  6. Remember this.  Even an item marked down that sells adds to your total sales column. Until that happens it is just inventory….. that is probably overstated in value on your financial statement.
  7. Finally, a clearance markdown sale is a chance to reward your loyal customers who pay full price with an opportunity to get a bargain from your mistakes.  It helps you and its a good deal for your customer.  It’s another reason to keep them coming back into your store.    

Don’t forget that buying mistakes will happen.  The only sin is not acting quickly enough to convert those mistakes back into cash to continue to grow your business.