Tuesday, October 16, 2007

My original plans were to keep on expanding my inventory and diversity through June of 2006, and then just maintaining. Instead, I got caught up in the idea of carrying new books and board games (having heard that Gambit was probably going to close.)

I continued to grow through the first three months of 2007, then tried to squeeze out the excess in the second quarter. Then my plan was to maintain whatever level I reached by July, 2007.

Still, I've allowed myself some flexibility. I've allowed myself to buy anything that I think will sell. I've replaced most of what has sold. So, I'm still probably spending more than I should.

At the end of summer, I cut back on my pre-orders, as I've said, but kept my reorders high.

Now, I'm even rethinking that.

Watching Brooks Resources bail on their projects, putting them in hibernation, has spurred me to rethink it yet again.

You have to realize, probably 80 to 90% of locals have never been through a downturn in Bend. Maybe even more than that many businesses have never been through it.

I have. I have no excuses not to react to my experience and instincts.

Brooks Resources has also been through this before. My exposure is nowhere near what theirs is, I'm just a tiny little business, but it wouldn't take as much to hurt me either.

I'm going to keep my budget at current levels through Christmas, but I'm also going to be watching Brooks Resource's moves. Because I figure they have a much larger pool of data than I do. For them to be reacting the way they are, they have probably been feeling it for six months or a year, been planning how to deal with it for a few months, and are going ahead because they've got enough reservations about the future -- and enough experience of the past -- to make the moves now.

Either they are smarter than everyone else, have more information and experiences than everyone else, are more decisive than everyone else -- or they're more desperate. Either way, it's an interesting wrinkle.

My guess is that they have ways of putting projects to sleep; put the project manager on half time through the end of the year, quit building anything that isn't pre-bought, let go the extra staff at the real estate offices, unload any properties that they aren't committed to, and so on. Their actual exposure may not be as bad as it looks. They owned the land already, afterall.

It may be they are sitting on a pile of cash, and can wait 18 or 24 months and buy back all the land they want.

Or maybe they're really hurting. Hard to know.

I think they understand though that the actual circumstances are more important than Bullshit P.R. That's a major difference between them and just about everyone else. Sure, Hollern says something about 'real' houses (what with him and the word real?) are selling to real people. But it's a bit of a fig leaf.

At this point, I don't think they care how it looks, because they know there is so much fluff and exuberance still in the market to get away with it. Believe it or not, from what I observe and hear at the store, the sentiment still hasn't turned negative, just slightly concerned.

I'm in a bit of the same position -- as long as everyone else is still thinking its a cold, I can bundle up and try to avoid pneumonia.

I've already cut my future exposure. The only question I have to deal with, really, is whether I should be cutting further my current exposure.

11 comments:

Anonymous said...

The only question I have to deal with, really, is whether I should be cutting further my current exposure.

*

What can you really cut?

Your lease?

Your employees?

I mean as a percentage of expense, those are your big expenses? Your inventory is all cash?

Have you dumped all the phones yet and gone all VOIP? That can save a $100/mo.

Duncan McGeary said...

Currently, over half of my weekly stock is coming in as reorders. I don't have to order most of it, I'm ordering it because I think I can sell it.

There was a good five year span in my business when I made no reorders whatsoever, so I know its possible.

Just not preferable.

But I do have that to fall back on.

And so far, I've been pretty good to the store, reordering most everything it needs.

If sales drop more than 10% I will instantly change that. So far, I'm just maintaining.

Duncan McGeary said...

A --- very, very rough --- estimate of what I need, is at 50% margins (which is pretty tight) I need to spend an equal amount on product that I spend on overhead.

I still have about 50% of that to give back if I had to.

And of course I could cut about 15% overhead if I absolutely had to.

So, I actually probably could survive a 50% drop, but it would be damn painful, and hard to negotiate without accruing some debt along the way. Which would have to be serviced, if not paid off.

But by then, concessions would be in order.

I really don't expect that to happen, Bilbobend. But, I could do it.

I've done it before. In fact, I survived a 75% drop.

I'm a hardy soul.

Duncan McGeary said...

I survived a 75% drop by shedding three stores. I hit the absolute irreducible number in 1998.

My irreducible number is probably about 25% higher than then. But my sales are more than 60% higher than then.

IHateToBurstYourBubble said...

Remember that in the Great Depression, entertainment sending went up...

IHateToBurstYourBubble said...

Uhhhh.... "spending"...

Anonymous said...

IHateToBurstYourBubble said...

Remember that in the Great Depression, entertainment sPending went up...

*

The new king-kong by jackson, tried to show that, but it was nickel vaudeville and new movies of the time. Folks didn't want to read or work at escapism, they wanted also to get into a warm clean place and just relax.

What is a nickel in wages these days? Certainly $20 bucks for a seat in a theater, pop-corn, and giant pop is OUT! That 3X wages for one person.

I think $1 video rental will be the escape for the future, all now have vhs and/or dvd, a buck is today, what a nickel was in the depression or close.

What can dunc sell for a buck that will help the masses of Bend escape their day-to-day misery?

Do you have a video line? These days stuff is rented, but thats a tough process with fads.

I'm sure you have a critical mass of blue collar folk that would want nothing more after a hard day than a cold beer and new comic book. See if you can get a new marketing strategy going over at the Silver Moon. That's the cheap beer of Bend these days.

Make a deal with Silver Moon and include a gift-cert with a comic book, ...

Duncan McGeary said...

You can't 'create' comic customers. You ... just ... can't....

Believe me I've tried.

Yeah, but books and art and all the other pop culture stuff should still have some appeal in a down market.

More like the difference between a 2.99 comic and a 50.00 video game.

Anonymous said...

More like the difference between a 2.99 comic and a 50.00 video game.

*

yeh, that's where I have been wrong for years, I just cannot believe that parents spend $50 for all those games, I would have thought that years ago it would have ended, ...

video games, what a waste of time, ... but look how big the biz is today, and a lot of it is virtual sports, ... people playing football and baseball with their fingers, ...

On the beer/comic promo, I wasn't thinking of creating new comic readers, I was simply thinking of getting your regular blue-collar folk to visit more often.

Bend Economy Man said...

Duncan, I'm not sure why you think that Brooks Resources and Hollern are so smart. I guess, comparatively, they're smarter than a lot of other developers, but I think that until recently ,real estate development has not been an industry that weeds out the not-so-bright.

I say this because, I mean, take a look at Yarrow (Madras) and IronHorse (Prineville). In both those cases they didn't originally own the land, and they dumped a lot of money into grading and building roads and getting zoning approvals and hiring project managers and marketers and making websites, and the total combined build-out of these two subdivisions is like 4,000 homes. And the prices are like $250-400K.

FOUR THOUSAND HOMES! This isn't just a situation where the rug got pulled out from under them due to a slow market. They made a HUGE bet, an unsure bet. There was no evident market demand for premium-priced, massive, cookie-cutter housing subdivisions in Madras or Prineville, and it's not clear why Brooks Resources thought there would be.

Prineville has been around for over 130 years and it has STRUGGLED to reach the nearly 10,000 population it has now. Madras has been around for 100 years and hasn't hit 6,000.

What in the world made Brooks Resources think these towns were suddenly going to add thousands of new (and prosperous!) residents in the 10-to-15-year buildout periods of these developments? Prineville and Madras are the kinds of ag- and resource-dependent towns that have been LOSING residents all over the country for the last 50 years.

On the one hand it's a big vote of confidence in the attractiveness of these struggling communities. But as a business decision, it was for shit.

Duncan McGeary said...

I'm not certain Hollern is so smart. He might just be desperate.

But, it's just a feeling I have that he's got fall back.

For instance, I was talking to a Madras guy yesterday, and Yarrow came up. He mentioned that citizens were upset because the city was letting Brooks Resources buy the land "when they needed it."

If true, it lends credence to my theory that money at 'risk' is less than it appears.

The money they have spent seems like a pittance compared to the possible rewards ... or what looked a couple of years ago like possible rewards.

A bit of a gamble, but if maybe not as much as it appears.

Like me ordering on the JIT (just in time) basis from wholesalers instead of buying in bulk in advance and sitting on a ton of product. I can get similar results with less reward, but also with much less risk.