Google and YouTube, the darlings of Wall Street, are lowering their revenue expectations this year according to the WSJ. When multi-billion dollar powerhouses start kvetching about the economy, wonderment at your own business’ slowdown feels validated.
The fashion industry as a whole is one of the first to feel the effect of an economic slowdown. Disposable income diminishes as necessities like food and fuel become more expensive. Early 2007 industry analysts like Markos Kaminis were anticipating a slow down in the industry, even though most major retailers were in deep denial. First quarter of 2007 Companies like Coach and Blue Nile were touting the strength of their sales, translating into increases in their stock prices. Fast forward to early 2008 and the picture has changed dramatically for both companies. First quarter of this year found both Coach (COH) and Blue Nile’s (NILE) stock down by half of their last year highs.
What do the woes of billion dollar companies have to do with your family owned boutique or independent clothing line? They feel economic downturns later than small businesses, and they have far more resources to stay afloat. However, many small business owners don’t realize (or are too modest to consider) that they too can apply within their own business many of the same tactics that the “big boys” use to mitigate losses and avoid bankruptcy.
1. Get lean and mean
Scrutinize your non-essential and convenience services that can be dumped, or done in a more cost effective way. Employees used to that water delivery? Time for them to embrace tap. Have you looked at your recent cellphone bills? Can you live with a smaller plan and still avoid overage charges? Have you compared your credit card merchant vendor with their competition lately? Using a shredding service? Convenient, but would an Office Depot shredder suffice? Can you refine your workforce to fewer employee hours without affecting service?
2. Prioritize your must-haves
You must have electricity & telephones, so place those vendors at the top of your expenses. You need product to sell, or materials to make your products, so staying on good terms with your suppliers is essential. Employees must be paid for the work they’ve already done. Eviction is an obvious business killer, so paying your rent is a must. Or is it? These essential, must-have elements are necessary to staying in business, but when Paul is demanding payment, it’s time to get on the phone with Peter. Prioritizing between these essentials, and therefore your ability to be an ongoing venture, may depend on your ability to follow my next suggestion…
3. Negotiate your debts
If you find yourself in a cash flow crunch you’ll need to shore up your courage, get on the phone, and start asking for concessions from your vendors and suppliers. One unfortunate benefit of an overall downturn in the economy is that everyone is in the same boat. Most of your vendors are experiencing at least some of the same economic challenges you are encountering. They too are finding fewer new customers, and loyal customers are probably spending less. You will most likely find your vendors receptive, especially if you are pro-actively contacting them before your bills are terribly overdue. They don’t want you to go out of business any more than you do! Don’t just limit your calls to your suppliers, you can also negotiate with your landlord, credit card lenders, anyone and everyone to whom you owe money. It’s never too late, but if you’re in trouble, start today! The longer you wait, the less credibility you will have. Your goal should be to satisfy creditors based on what you can afford, not unrealistic collection demands that will only discourage you into washing your hands of the whole affair.
4. Make the 80/20 rule your mantra
A major business rule-of-thumb is that 80% of your business is made up from 20% of your customers. That means 80% of your effort and resources need to be focused on the top 20% of your customers. That doesn’t mean putting all your eggs in one basket! While you need to give your top current customers your love and attention, you also don’t want to assume they’ll always be there. You will use this information to identify what those customers have in common so you have a stronger sense of your core market. That’s why sales and marketing will become more essential to your survival at a time when you might need to cut their budgets. So, it’s time to get creative…
5. Pump up your marketing
This might seem like a bad time to be investing in more advertising, but it’s a good time to demand a greater return on your advertising dollars. Since marketing budgets are often the first to go, advertising venues are clamoring for your business. You’re probably getting the same desperate sales calls that I get from magazines, trade show venues and the like. A friend in the promotion printing business told me his sales were down over 25%. The upside is that an advertising dollar has never gone further.
Your closely paid attention to that top 20% of your customer base has helped you identify your core market and you’ve decided on the best medium to communicate with them. So, now you’ll want to use the magic words (these will work on all your vendors, including advertising services), “What’s your best price?”, “Oh, that’s X amount outside of my budget, could you do a little better for me?”, “I’d be interested in product A if product B were also included in the price.” Keeping these magic words in mind in both the good times and bad will keep your business happy, healthy and feeling wise.