How-To Run A Better Team Business in 2010

Manage inventory ... By Insurance ... Be A Better Boss

As a challenging 2010 kicks off, Team Insight once again turns to the experts for advice for not only running a small team dealer, but for operating a successful small business. Their advice is timely, so read on, learn a little bit, and feel free to refer to Parts 1 and 2 of this series by logging on to http://www.TeamInsightMag.com..

How To ...
BETTER MANAGE
YOUR INVENTORY

THE POWER OF ‘NEW’

By Ritchie Sayner, VP-business development and senior analyst, RMSA

Which sells the best — fresh new merchandise received just in time for the upcoming season, or inventory left over from last year that you didn’t clear out because you had a complete run of sizes that you thought you could sell during the next season?

With even a remedial understanding of the concepts of turnover and gross margin return on investment (GMROI), it should be easy to determine that new goods always trump old merchandise when it comes down to what will sell the fastest. The longer an item remains on the floor unsold, the more it costs you — not only in real dollars, but in opportunity costs.

It might be more accurate to say “in missed opportunity costs.”

Early in my career as a merchandise manager, I was assigned the task of improving the sales in the shoe department of the department store where I worked. Our shoe buyer was an older man who had been in the shoe business longer than I had been on the planet and we both knew it. In the process of reviewing our falling sales and heavy inventory position with him, I convinced him that a tour of the stock room would be eye-opening for both of us.

The Stock Room Tour

And was it ever! I was looking for leftover sizes, bad colors, poor fitting models, discontinued vendors and other slow sellers that we could immediately slash, so we could generate cash and open-to-buy dollars to reorder fresh merchandise that was beginning to sell. He was proudly pointing out complete size runs of shoes that we had owned for longer than I am willing to admit in print.

When I said we really needed everything on sale that had been in our store longer than six months with the exception of models that he could justify selling into the next season, he looked at me like I had two heads. Yet after the purging was complete, our inventory had been reduced by about one-third in both dollars and pairs, sales volume in the department was growing at a rate of roughly 20 percent per month, and margins were improving because we were selling newer goods at full price instead of out-of-season product that we were lucky to sell for cost.

Even today, some retailers are very skeptical when they hear me say that sales volume and margins can increase with a decrease in their inventory position. Did I mention that cash flow improves because new customers find their way to your store and existing customers buy more?

I am currently working with several retailers in this exact situation. One merchant in particular comes to mind. The store is turning its women’s shoes 3.2 times, all the while enjoying a 49.5 percent margin and a 15 percent sales increase over last year. Over 98 percent of this merchant’s inventory is less than three months old.

My discussions with this store are different from others that I often have. There is no complaining about the poor economy, how $3 per gallon gasoline is keeping customers from the stores, what the competition is doing or which vendors
didn’t ship this or that. Instead, we constantly review current fast-selling models for possible reorder and slow sellers that can be reduced in-season with a small markdown. Remaining open-to-buy dollars are used for off-price goods to add freshness to the assortment and bolster the margin. The Power of New has changed this retailer’s total approach to his business.

Merchandising the New Versus the Old

Grocery retailers generally have a greater understanding of The Power of New goods than retailers do. That shouldn’t be surprising — they have to, otherwise they must throw their inventory away, literally.

Next time you are in your neighborhood grocery store, look at how the bananas are merchandised. Typically, the newer fruit has a bit of green on the tip. These are the bananas that will be perfect to eat for the next few days. On the other hand, the old bananas have already begun to show their age by virtue of the dark spots on the skin. These will soon be bagged and discounted as their value to the store is diminished and their only remaining purpose is to become banana bread.

The point is that no one comes in to your store purposely looking for old merchandise, unless they are solely bargain hunters. Shoppers, especially women, frequently shop stores looking for what is new. Prove The Power of New to yourself. Change a display in your store, rearrange a fixture or redo the window and see what happens. Items you may have had for a while will begin to sell because they appear “new.”

Address It Now

Here’s a money-saving tip that can help you now. Identify anything in your store that is more than six months old. What percentage of your inventory does this represent? If more than 20 percent is older than six months, you have a potential problem. If over 30 percent of your stock is old, it is no longer a “potential problem” — it is a problem that needs to be addressed now. Mark it down and clear it out! Reorder items that are selling well and search for promotional inventory if your open-to-buy will permit.

Put The Power of New to work for you and watch your sales and profits increase.


Ritchie Sayner is VP-business development and senior analyst, RMSA (Retail Management Solutions). He can be reached at rasyner@RMSA.com.


How-to ... Make your staff not hate you

Every small business owner has to deal with different personalities, internal politics and the challenges that go with running a business. This is true in team sports as much as anywhere. There are some general areas of opposition that can be eliminated though, many of which managers today may not even be aware of. Here, Thought Leaders LLC discusses some of these in a blog entitled “Ten Reasons Your Team Hates You.”

Reason Number 10. You don't prioritize ... Everything is important. When you do this, you remove your team's ability to say “no” to less important work and focus their efforts on critical tasks.
The fix: Write down all the tasks you have folks working on and force yourself to assign a High, Medium or Low priority to each task (and treat it as such). Thou shalt only have 33 percent of all tasks in each of those three categories — you can't assign everything a High priority.

9. You treat them like employees ... You don't know a darn thing about them as a person (which makes them feel like nothing more than a number).
The fix: The fix is simple and obvious.

8. You don't fight for them ... When is the last time you went to bat for a team member? And I mean went to bat where you had something to lose if it didn't work out? When you don't stand up for them, you lose their trust.
The fix: Identify something you should have gone to the mat for recently and get out there and fight. Help get a roadman that sale he has worked so hard on. Go fight for them to get that cool new product to bring out of the bag.

7. You tell them to “have a balanced life,” then set a bad example ... You tell them weekends are precious and they should spend them with their family then you go and send them emails or voicemails on Sunday afternoon.
The fix: Either curb your bad habit of not being in balance or learn how to do “delayed send” in Outlook so your messages won't go out until Monday morning.

6. You never relax ... You walk around like you have a potato chip wedged between your butt cheeks and you're trying not to break it. When you're uptight all the time, it makes them uptight. Negative or stressful energy transfers to others.
The fix: Laugh. Get a remote controlled car or tricycle to drive around the office, or put on a Burger King crown. When you relax, your team knows it's okay for them to relax, too.

5. You micromanage ... You know every detail of what they're working on and you've become a control freak. They have no room to make decisions on their own (which means yes, they'll make a mistake or two).
The fix: Back off. Pick a few low-risk projects and commit to not doing anything on them unless your team member asks you for assistance. It'll be uncomfortable for you. But give it a try, you micromanaging control freak.

4. You're a suck-up ... If your boss stopped short while walking down the hall, you'd break your neck. Your team hates seeing you do this because it demonstrates lack of spine and willingness to fight for them. It can also signal to them that you expect them to be a sycophant just like you.
The fix: Try kicking up and kissing down instead.

3. You treat them like mushrooms ... Translation: they're kept in the dark and fed a bunch of crap. Do you ration information? Do you withhold “important” things from them because it's “need to know” only? All you're doing is creating gossip and fear.
The fix: Stop acting like 007 and spill some beans.

2. You're above getting your hands dirty ... You're great at assigning work. Doing work? Not so much. They hate watching you preside (and they hate it even more when you take credit for what they slaved over).
The fix: Get dirty. Climb under the proverbial tank and turn a wrench. Get out on the road to some schools. Roll up your sleeves and pick a smaller project you can handle in addition to your other responsibilities and do the project yourself.

1. You're indecisive ... Maybe. Or not. But possibly. Yeah. No. I don't know. Oh my gosh, make a decision already. That's what you get paid to do as the leader. You drive them crazy with your incessant flip-flopping or waffling.
The fix: Do something. Acknowledge you might make a mistake, but do something. A team is much more likely to follow a leader who makes decisions (even some bad ones) than a leader who makes no decisions at all.

There they are: 10 reasons your team hates you. Do any of them fit? I'll tell you what: I dare you to send this article to your team members and ask them to anonymously circle any of the above behaviors that apply to you. I then further challenge you to fix the one or two that have the most votes. Trust me — all of you will be happier if you do.


How To ... Know how much property insurance to buy

By Kristy Longfellow-Hodik
Hobson Insurance http://www.businessquote.com

Fire burns your entire business to the ground. Lightning hits your building, destroying all computerized and electronic equipment and starting a small fire that causes smoke damage to your inventory. A thief breaks in and steals several computers. A hot water heater in the unit next door ruptures and floods your space, damaging fixtures and inventory.

Do you have enough insurance to replace your property in these scenarios? How will your policy respond? Many business owners do not realize how good (or bad) their coverage is until they need it.

Building Coverage ... If you own your building, the limit carried should be enough to replace your building. Nearly every policy has a co-insurance clause that requires you to carry certain limits based on replacement cost of your property. If you are not insured to the required limit, you can be penalized substantially in the event of a claim. For building coverage, this limit is determined by square footage and construction. Be sure to review this limit annually and make sure you are insured to value.

Also be aware this co-insurance clause applies to your furniture, fixtures, inventory, and equipment.

Co-Insurance ... When your policy has a co-insurance clause you can be penalized on claims if you are not insured to the value the insurance company determines your property would cost to replace.

Co-insurance requirement of 80 percent means you must insure to within 80 percent of what the company determines replacement cost to be or they will penalize you on any partial losses to the extent you are underinsured.

Example: Partial fire loss of $100,000 in an 8000-square-foot brick building insured for $500,000 with an 80 percent co-insurance requirement and a $1000 deductible.

Replacement cost calculators are estimating it would actually cost $1 million to replace this building. That is $125 per square foot. To avoid a co-insurance penalty, this building should be insured for at least $800,000 (80 percent of replacement cost). In the event of a total loss, you would be better off insured to full replacement cost.

The claim would be paid as follows: What limit you did have divided by what you should have had times the amount of the loss less the deductible:
$500,000 / $800,000 x $100,000 – $1000 = $61,500 paid on a $100,000 loss

Even if you have a three-story building with a
2000-square-foot ground floor you only want to insure for $500,000 because you would not replace all three stories, your policy still may be based on replacement cost of the entire 8000-square feet. It is very important to understand how your policy is set up.

If you lease your building, you may be required to insure the glass in your area as well as any tenant improvements you have made to your space. Be sure you understand the insurance requirements in your lease. For example, if the hot water in a neighboring unit ruptures and floods your space will the landlord cover this or will you?

Content Coverage ... Your business personal property limit should be enough to replace your furniture, fixtures, inventory and equipment. Co-insurance clauses also apply to content. If your inventory fluctuates, be sure your policy allows for this inventory fluctuation and provides peak season coverage. Some policies automatically allow for up to 50 percent more inventory coverage during your peak season. If you have more than one location it is beneficial to have blanket coverage so you do not have to worry if inventory fluctuates significantly between locations. Also be aware of what your coverage limit is for property in transit, off premise, or in the care of sales people.

There are may other coverages included with a good policy, including money and securities, signs, accounts receivable, personal property of others, debris removal, equipment breakdown, etc.

Causes of Loss ... It is best to have a special form that covers all causes of loss unless specifically excluded. Two major exclusions business owners need to be aware of are flood and earthquake. These perils are typically excluded on most policies and must be purchased separately. Employee dishonesty is one of the most frequent losses businesses experience. It is a good idea to look carefully at this limit.

Business Interruption
This critical coverage can make the difference between closing shop and continuing on after a devastating loss. This coverage helps pay for ongoing expenses, payroll and extra expenses incurred when a loss occurs. For example, you may have no income if your building burns down, but want to continue payroll, must pay ongoing bills to suppliers and must shell out extra dollars to lease an alternative space.

Stay tuned for another article on understanding more about liability insurance, the other half of your policy.


It is recommended you review your insurance policy at least annually and when you make any changes to your business. Hobson Insurance specializes in business insurance and has been well established in the sporting goods industry for over 30 years. For more information feel free to contact Kristy Longfellow-Hodik at Hobson Insurance phone 800-296-7985 or kristy@businessquote.com or http://www.businessquote.com .

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