Friday, March 11, 2011

The Journey to a Stable Store.

This may seem like one of those self-absorbed, wonky business posts that I so like...but, actually, this is more the story of my journey to having a stable and profitable store.

In about 2002, I set a daily sales goal that I thought would accomplish everything I needed for the store: pay the overhead, get the proper inventory, pay myself a living wage, and a bit extra for retirement.

I had just finished paying off a rather massive debt, that I'd been carrying for ten years or so.

So I had, in a sense, a fresh start. (We'll ignore the first 18 years, which were a roller coaster of lows and highs and mistakes and discoveries, and -- well, let's just call it a learning experience.)

The daily sales goal I set was about 1/3rd higher than I was actually doing in 2002 and seemed like a very hard total to reach.

For the sake of discussion, I'm not going to tell you what our actual sales were and are, but I'm going to use a 10 point scale. (You could translate that into $1000.00, if it makes it easier -- but I assure you, I don't earn anywhere near that much per day...)

So on that 10 point scale, we were doing 6.5 in 2002.

As it happened, the big Bend boom started around the same time. Sales shot up, and I plowed all the money back into the store. I realized early on that it was a bubble, and knew from past bubbles that sales could easily drop in half. So my goal was to push sales as high as I could get them, and at the same time keep fixed expenses level, so that when the inevitable bust happened, I'd still be viable.

So most of the extra earnings went into inventory, instead of profits. (Inventory, IS, profits, if you want to get technical.) I probably tripled my inventory during that time.

Meanwhile, I hit my sales goal and shot well beyond it. Let's say, 13 on the 10 point scale.

The inevitable happened, and sales started dropping, and we are back to 8 on the 10 point scale.
Which is better than 6.5, but not as good a 13.

But an interesting thing had happened in the meantime.

The new inventory was in new product lines -- new books, boardgames, used books, etc.

It turned out, the mix of product lines allowed me to push the profit MARGIN to a higher level.

I'd been doing about 40% profit margins for the proceeding 18 years, sometimes a little lower (with higher sales.)

By being much more picky and choosey with the lower margin products -- anime, toys, and cards -- I was able to let them decline to a smaller piece of the overall pie, and at the same time, I was able to boost their usual 35% margins a bit higher.

I was able to find discount wholesalers for new books, and from Linda's store, I have an endless supply of free used books. (Can't have a better margin than 100%, right?)

Meanwhile, the comic industry also started offering regular deals; at first with seasonal blowout sales, and eventually weekly liquidations, and or special offers.

I found that if I consistently took up these special offers, I could save at least 10% on very viable, evergreen product -- and save much more on the mid-list product. If I do this just about every time they are offered, I start pushing my profit margin higher.

Eventually, the stuff I was buying at a higher discount, was reflected in the stuff I was selling.

So, my margins have more or less settled in at a good, solid 50%.

Which means, that doing an 8 on a 10 point scale with 50% margins, is exactly equal in profits to doing a 10 on a 10 point scale with 40% margins.


So, in a sense, I've reached my goal, and I've been able to maintain it during the worst recession since the 1930's.

It may be a temporary resting point -- indeed, it most probably is with all the massive changes that are taking place in the retail world -- but it's still a nice place to land.


Duncan McGeary said...

This sounds so simple in hindsight. But it was a real journey getting there.

Anonymous said...

Why call it a recession? With over 10% real un-employment, but definition its a depression.
Then again, its the worst since the great-depression, and we're only 5% into the beast, so coming out maybe you'll say its the worst recession in the last 100 years?
Nope my guess is the 'D-word' is like the N-Word, and dunc will never use it.

Anonymous said...

The massive earthquake in Japan could be the black-swan we have been waiting for. 100's of billion of Japan held t-bills ( & t-bonds ) will have to be sold to cover reconstruction costs. This could state the great sell-off of US-GOV debt held by asia.

Strangest news today coming out of Japan is that H-Clinton said that the US-Military had been supplying coolant for the 2 critical reactors in Japan damaged by earthquakes. Shortly thereafter a us spokesman said HRC mis-spoke. They have 2 reactors which are supposed to go chernobyl/3mile-isl, in the next few hours. The theory is they may vent the high-pressure coolant aka chernobyl and pollute most of japan with radiation, and then use US-MIL coolant to replace the lost into the atmosphere.

BLACK-SWAN indeed, there may be more than 2 reactors ready to go.

Anonymous said...

"It's possible that radioactive material in the reactor
vessel could leak outside but the amount is expected to be
small, and the wind blowing towards the sea will be considered,"
Chief Cabinet Secretary Yukio Edano told a news conference.


Ok, don't worry its all going to sea, and the current is clock-wise, so all the radioactive shit will flow to the PNW seaboard. Sheet first we were smug to escape GULF-OIL, and TSUNAMI was not big. But now we'll have a slow toxic radioactive death of the north-pacific ocean, oh well ...

'small' my ass they got to release all the shit from all the reactors, otherwise they explode, and then its chernobyl for all of asia, ...

H. Bruce Miller said...

"we're only 5% into the beast"

You're saying this recession/depression is going to last 38 more years??? What do you base that prediction on?

It might last 38 more years in Bend, but in the whole country, I doubt it.

H. Bruce Miller said...

"The massive earthquake in Japan could be the black-swan we have been waiting for. 100's of billion of Japan held t-bills ( & t-bonds ) will have to be sold to cover reconstruction costs. This could [start] the great sell-off of US-GOV debt held by asia."

Bingo. It also could pull Japan out of the economic slump it's been stuck in since the 1980s.

Massive public spending -- whether for wars (as in WWII) or for reconstruction after disasters -- has historically been the way countries pull themselves out of depressions. In America today, Republicans can't (or won't) understand this, so they want to slash government spending -- the absolute WORST thing you can do in a recession, as all economists (not just Keynesians) agree.

H. Bruce Miller said...

Media are reporting what sounds like a major explosion at Japanese reactor. Authorities say danger of meltdown is not "imminent" -- whatever the hell that means.

I'm assuming this was an up-to-date modern plant, not an obsolete relic like Chernobyl. I have been an advocate for nuclear power, but now I'm rethinking it.

Broofa said...

Hey Duncan, congratulations! It's great you hit your goal. Very cool!