Businesses often branch out to some other segments or niches, and small businesses are no exception. Similar to independent retailers, many are involved in far more areas than just retailing. Sometimes it can get pretty complicated. And with revenues off, sometimes those complications, and the decisions they now require, can become pretty daunting.
Here are some examples of how independent retailers are branching out their businesses:
- An independent garden center that grows rather than buys most of its annuals.
- An antique furniture retailer that resizes all of its antique beds, while doing some of the refinishing themselves, and subbing out the rest.
- An independent footwear retailer that operates lease departments along with its own retail stores.
- Another independent footwear retailer which also sells industrial footwear directly through institutional accounts.
- A ceramic tile retailer that’s also an importer and a distributor.
With all the branching out, it is imperative that you understand how each part of the segments contribute to your overall business. Start by asking yourself these questions:
- What pieces of the business are profitable?
- Which are not? Where exactly am I bleeding cash?
- Where can I cut?
- Where can’t I?
- What segments should I drop?
- Which road should I take?
There are many independent retailers who are involved in far more than just retail. Over the years, their businesses have grown and evolved as opportunity called or necessity dictated. They had to develop new skills and learn new markets. In some cases the evolution was deliberately planned out, in others decisions had to be made in a flash. These are all businesses I’ve worked with at one time or another.
One other thing that they had in common was that while they were always able to measure the overall profitability of the business, they struggled to break out the profitability of each segment separately, if they felt the need to really try at all. This is not at all unusual among independents. And so, in this downturn, one of the challenges for hybrid independent retailers is understanding exactly what segments of their business are contributing and what segments are draining cash.
They can clearly quantify the changes in revenue by segment, but breaking down costs, and appropriately allocating costs is often something they’ve not previously spent a lot of time on. (Something their larger corporate counterparts have had the resources to break down and study in the minutest of detail.) One reason is that their retail business has dictated that their operating system be a point-of-sale system. For these independent retailers, a POS system is usually inadequate for capturing the full range of costs, and allocating them properly to different operations and cost centers.
Further, in a smaller business, the lines between different functions frequently blur, both on the ground and in the way data is captured and processed. Thus, even the general ledgers can get pretty muddy. For many independent retailers, this has become a problem as they struggle with cash flow, decisions about how to reduce costs, and whether to discontinue certain business segments or outsource certain processes. And yet, in this new environment, when spending patterns have changed and real retail prices are dropping, everything has to be reviewed and reconsidered. Every segment must be understood completely. Some functions, like growing part of your live stock yourself or finishing restored and resized antique beds, may need to be discontinued if it’s more economically to outsource instead.
Or, perhaps it all needs to be done in-house. Some of the lease departments may need to be terminated, or perhaps the business needs to be fully converted to a leased department model. Or converted strictly to an industrial accounts business model. Perhaps the business that’s both a retailer and a wholesaler should focus solely on one or the other. This is one of those times when circumstances require that every independent retailer be prepared to once again adapt and change in order to once again move forward.
Ted Hurlbut is a retail consultant, coach and speaker who helps independent retailers increase sales, profitability and cash flow by leveraging his deep expertise and proven retail know-how, Get his FREE report “The 16 Essential Elements of a WINNING Independent Retail Strategy” Visit: HurlbutaAsociates.com
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Category: Business Challenges