Thursday, March 31, 2011

A short history of Pegasus Books.

Much of what I say here probably makes no sense unless you know a little history of my store.
So for those of you who have read entries from years ago, move along. For others, this short history kind of puts it in perspective; why I do what I do, why my store seems to have weathered the downturn so well.

Hey, it's all relative.

The first ten years were a roller coaster ride -- booms in sports cards, comics, non-sports cards, magic, and so on. Opened four stores, closed three of them and so on. Sales were high, margins were minimal. Risk -- as it turned out --enormous.

When it all crashed, (sales dropping in half and going south), I decided to hang on. For the next ten years, about 40% of my GROSS PROFIT went toward debt. So, it would've been the equivalent, basically, of those of you with paychecks handing 50 to 60% of your earnings to the credit card barons. Yeah, brutal.

I had no credit. No cash reserves. Most of my distributors put me on Cash On Delivery terms.

I got really, really good at getting product -- enough to keep the store alive. And selling enough of it, at high enough margins to keep going.

Then, after ten years, the debt was paid off.

I could've pocketed the money. But the store was so threadbare that I decided to reinvest for a few years. So for the first half of the boom, say 2002 to 2005, I was just taking all the profits and plowing them back in the store.

Around 2005 or so, I was convinced there was an economic bubble in the U.S.A and especially in Bend, Oregon.

If I was operating at such and such a margin and needed X amount to survive, then I need to increase both the margins and the overall X so that I could survive a 50% drop in sales.

I prepared for a 50% drop in sales.

I also was determined not to raise my overhead, or to incur debt.

The years between 2006 and 2008 gave me opportunities to move into new product lines, creating more diversity and cushioning the future bust. (The Book Barn on Minnesota Ave. and Gambit Games on Wall St. went out of business, so I brought in new books and boardgames.)

When the bust happened, I didn't have debt. I had a large cushion in overall sales I could give up and retreat. And my margins were better. (Not to mention, better credit terms, credit backup, and cash reserves. Oh, the luxury.)

Turns out, there are compensating factors to a downturn. I get a small decrease in rent (not enough), I was able to cut employee costs without working every day, and as I mentioned in the previous post, I was able to start getting slightly better deals on product. Every 10% I save in costs, is worth 25% of my sales.

And I had those ten years of experience of dealing with C.O.D terms, no credit, no cash, no reserves -- no margin of error at all. 40% of gross profit going toward debt.

After that, the Great Recession has been more like a giant bump in the road.

So what else is new?

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