Bad is Good Business

As the great recession became ever more present, businesses faced challenges never before seen by their managers. On December 2008, Mobile Electronics magazine requested that I write an article on what retailers should do as they face their new environment. Following is such article. As I have commented before, it is quite insightful to revisit former thoughts with the benefit of hindsight. Some times we were right; some times we weren't. In any case, we are always better off after the exercise.


A Bad Economy Can Be Good for Business
Downturns bring innovation and separate strong from weak

It’s no real secret that recent spikes in oil and gasoline prices have consumers to trim their spending habits, and those of us in the electronics industry – from manufacturers to distributors to dealers – are feeling the economic slowdown in a painful way.

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Anemic floor traffic has become the norm for many retailers across the country, and customers seem to be spending less of their hard-earned cash on what you sell. Even though oil prices have fallen, downward sales trends don't seem to be dissipating anytime soon. And with many volatile factors contributing to the seesaw value of oil, there is a chance gasoline prices may climb higher in the near future. If this economic slowdown persists well into 2009, what will happen to the industry and your businesses?

It may seem counter-intuitive  but recessions are actually good for business. They help to cleanse the excessive exuberance of the past and create a Darwinian environment where only the best (the fittest) companies survive. Good times tend to breed bad businesses and, once the tides turn, many poorly conceived or operated companies close their doors when the plentiful supply of willing customers ends.

Retailers should be focused on this factor rather than the price of gasoline, regardless of the possibility of a continued economic downturn. Think of now as a time when those businesses that offer superior quality, better products, excellent customer service and support, and efficient operations will be rewarded with the right to continue operations and, most importantly, with a larger piece of the pie. Stated simply, this is a period of opportunity.

During a conversation a couple of years ago, David Hall from Traffik Jam said to me “I did not become a business owner by degree, but by decree.” Though he was an avid electronics enthusiast first, he had taken upon the role of running a successful business, managing multiple employees and maintaining relationships with distributors and clients. While he may not have completely understood (or even actively participated in) the decision to own a retail business, David charged ahead, focusing on the potential rewards. David’s story teaches an important lesson: looking at the upside of a daunting situation can help turn a serious challenge into a bountiful opportunity.

At a time like this, banks lend at high rates, if they lend at all. Therefore, it is paramount that you make your cash work harder than ever. The way to do that is to aggressively reduce your current inventory. Savvy salesmanship and clever marketing are what you need to take products gathering dust in a warehouse and push them out the door. Meanwhile, ensure you keep enough of the “quick sell”  products in stock – getting rid of these (or drastically reducing the amount you order) may result in unhappy customers that will take their business elsewhere.

Additionally, you should buy from vendors who can quickly and inexpensively deliver the products you and your clientele need. This will give your sales people great agility and will ultimately maximize each and every selling opportunity that presents itself. Subsequently, you must also identify what products and services present the best opportunities for boosting your bottom line. While margin percentage is good, margin dollars are better, so concentrate on selling the products that contribute the most margin dollars to your business.

Another step you can take to remain successful during hard economic times is to pay down outstanding loans as quickly as possible. Often, during high-growth periods, business owners can’t help but feel optimistic about their ability to buy (and pay for) everything from real estate to just plain old toys. As a consequence, they end up overloaded with burdensome loan payments that place the health of the business in jeopardy. Rather than continuing to deplete your income with debt, sell nonessential assets to pay down loans – especially those with high interest. Cash is king in business, so protect your cash whenever possible.

The final recommendation I have, and I can’t emphasize this enough, is that you continue to build the best team you can. In this environment, your goal should be to capitalize on each and every customer that walks through your door. That means you must have an efficient and effective workforce that can deliver excellent customer service while also being mindful of costs, time expenditures and company goals. This requires a cohesive, focused team who can work tirelessly to ensure each and every business opportunity is fully exploited. Cash may be king, but good people are what bring value to a business.

The present inflation and economic stagnation may be with us for many more months, possibly as long as this same time next year. Gasoline prices may rebound in the near future, placing further negative pressure on consumer wallets. Nevertheless, the resulting cleansing effect this has on markets (particularly ours) creates opportunity.

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Rather than focusing on what is driving these tough times, focus on the rewards that await those who drive their business. After all, if all things go well, you may even be able to expand into your competitors’ closing location.