What about my wife's store, which carries nothing but used books? You might ask.
Bear with me, as this will require explanation, and perhaps some quibbling over terms.
I think there are two different types of specialty stores.
The first kind is the store that carries a product that only a small fraction of the population is interested in. This is more or less the kind of store that I was talking about in the previous post, the kind of store that I am and am accustomed to.
The other kind of store is the kind that carries a 'commodity' but carries a specialized selection of a commodity.
A commodity is a product that has a wide appeal -- say more than 20% or 30% or 50% or 100% of the population will buy -- bikes, shoes, pants...and I would maintain, books.
The higher the percentage of the populous buys a commodity, the more ways specialty stores can slice it up.
It's different dynamic and one I admittedly don't fully understand.
But based on my wife's store experience, it is a bit easier to maintain a small percentage of a larger group, than a large percentage of a smaller group.
Friday, October 31, 2008
Specialty and general relativity.
Specialty stores contain a paradox at their very core.
If the specialty is successful it will become so ubiquitous that it's no longer special.
Almost by definition, a specialty store will appeal to the hardcore enthusiast. That's why it exists.
The trouble is, while only some 'soft' (moderately interested) customers will become hardcore, almost all hardcore customers will eventually become soft.
The same holds true of the specialty itself. Whatever increased interest impelled a specialty store to open will start to become diffused. If a specialty store is successful, it will spawn copycats. Eventually, if the specialty becomes big enough, it will attract the attention of the chain-stores.
The more interest, the more product; the more product, the cheaper the competition and less "special" it all seems. In a word, supply ALWAYS catches up to demand.
At a guess, most specialty stores -- be they sports cards, or scrap book, or coffee shops -- have about a 5 years span when they are the main focus; but very few can maintain that for 10 years or longer. If the interest is strong, then the specialty is diffused, if it weakens, then it becomes harder to support. It's almost impossible to keep a -- one on one -- correlation between interest and support.
At the same time, a specialty store is almost required to carry 100% of the product available in that specialty, or at least a sample of each thing. This, in order to get say 80% of the customers. This is a valid business model, as far as it goes.
But if the customer base drops to 70% of the customers, the 100% full-service, 'all things to all people', model becomes harder to maintain. So the specialty store cuts from 100% support, which means that even fewer hardcore will stay customers, and down they go.
I finally arrived at a survival mechanism where I attempt to carry as much product as I can to attract 20% of the customers of a specialty. The hardcore are never terribly interested in my store, especially while they still have the option of going to a full service specialty store.
I will support a specialty 100% as long as I'm getting 80% of the business. Comics, almost by accident (bubbles burst, difficult business conditions) has managed to maintain a workable equilibrium. The mass market mostly hasn't figured out how to do them. (But I'm constantly aware that this could change through competition.)
But just about everything else I carry is predicated on picking up the casual customer, sometimes because they wander in, sometimes because they're in my store for something else, and sometimes -- and these people are golden -- because they stay loyal thick or thin. I think of myself as a pop-culture general store.
Over time, I'm able to carry much more of the product than I need to maintain that casual customer base; I suppose I'm always dreaming I'll get the hardcore customer back when they have no other options.
Usually, though, the hardcore customer simply stops altogether.
When the base of support for a specialty starts to sag, the hardcore customer is often contemptuous. They feel that they have options -- other specialty stores, the mass market.
But by becoming so diffused, the specialty starts to fail up and down the line. What is left, usually, is a couple of shelves at the mass market, and a few stores like mine which still carry a smattering of product.
In a sense, if I carry 8 different product lines for casual customers, at the 20% rate, I pick up the equivalent of 160% of the possible customers. Plus I can constantly adjust the level of support for each product line. It's a lot more work, it required an expertise on many more levels, and makes the store packed from top to bottom, (it requires more investment of time, energy, space, or money), but it also allows me to stay in business.
I didn't arrive at this conclusion until I'd seen one specialty after another collapse, and I was too stubborn to give up completely but too smart to keep trying to fully support a specialty that didn't return the favor.
I've always said, a specialty store will always do better in the short run, but the general store will always do better in the long run.
Sorry this is so wonky, but this is the kind of 'mom and pop' stuff that I never see written about anywhere else.
If the specialty is successful it will become so ubiquitous that it's no longer special.
Almost by definition, a specialty store will appeal to the hardcore enthusiast. That's why it exists.
The trouble is, while only some 'soft' (moderately interested) customers will become hardcore, almost all hardcore customers will eventually become soft.
The same holds true of the specialty itself. Whatever increased interest impelled a specialty store to open will start to become diffused. If a specialty store is successful, it will spawn copycats. Eventually, if the specialty becomes big enough, it will attract the attention of the chain-stores.
The more interest, the more product; the more product, the cheaper the competition and less "special" it all seems. In a word, supply ALWAYS catches up to demand.
At a guess, most specialty stores -- be they sports cards, or scrap book, or coffee shops -- have about a 5 years span when they are the main focus; but very few can maintain that for 10 years or longer. If the interest is strong, then the specialty is diffused, if it weakens, then it becomes harder to support. It's almost impossible to keep a -- one on one -- correlation between interest and support.
At the same time, a specialty store is almost required to carry 100% of the product available in that specialty, or at least a sample of each thing. This, in order to get say 80% of the customers. This is a valid business model, as far as it goes.
But if the customer base drops to 70% of the customers, the 100% full-service, 'all things to all people', model becomes harder to maintain. So the specialty store cuts from 100% support, which means that even fewer hardcore will stay customers, and down they go.
I finally arrived at a survival mechanism where I attempt to carry as much product as I can to attract 20% of the customers of a specialty. The hardcore are never terribly interested in my store, especially while they still have the option of going to a full service specialty store.
I will support a specialty 100% as long as I'm getting 80% of the business. Comics, almost by accident (bubbles burst, difficult business conditions) has managed to maintain a workable equilibrium. The mass market mostly hasn't figured out how to do them. (But I'm constantly aware that this could change through competition.)
But just about everything else I carry is predicated on picking up the casual customer, sometimes because they wander in, sometimes because they're in my store for something else, and sometimes -- and these people are golden -- because they stay loyal thick or thin. I think of myself as a pop-culture general store.
Over time, I'm able to carry much more of the product than I need to maintain that casual customer base; I suppose I'm always dreaming I'll get the hardcore customer back when they have no other options.
Usually, though, the hardcore customer simply stops altogether.
When the base of support for a specialty starts to sag, the hardcore customer is often contemptuous. They feel that they have options -- other specialty stores, the mass market.
But by becoming so diffused, the specialty starts to fail up and down the line. What is left, usually, is a couple of shelves at the mass market, and a few stores like mine which still carry a smattering of product.
In a sense, if I carry 8 different product lines for casual customers, at the 20% rate, I pick up the equivalent of 160% of the possible customers. Plus I can constantly adjust the level of support for each product line. It's a lot more work, it required an expertise on many more levels, and makes the store packed from top to bottom, (it requires more investment of time, energy, space, or money), but it also allows me to stay in business.
I didn't arrive at this conclusion until I'd seen one specialty after another collapse, and I was too stubborn to give up completely but too smart to keep trying to fully support a specialty that didn't return the favor.
I've always said, a specialty store will always do better in the short run, but the general store will always do better in the long run.
Sorry this is so wonky, but this is the kind of 'mom and pop' stuff that I never see written about anywhere else.
As goes the city, so goes business....
If Bend is going to have a protracted downturn, which I'm convinced we will, then how do I approach coming here every day? To I put lipstick on the pig? Do I pretend the pig isn't there? Or do I slaughter and eat the pig?
So far, as 'negative' as some people have said I've been, if anything I've let the optimistic, hope for the best, part of me control my message, and my planning.
While the more logical, downbeat part of me was sort of nagging, then shouting at me.
So....
I thought the article in the Bend Bulletin this morning about the Bend Reserves Fund, was a perfect representation of the "Hope for the Best" psychology that dominates at the beginning of every bubble burst. The unwillingness to believe, the inability to change. While your reserves get whittled away.
Actually the emergency that the reserves were created for, hasn't really even begun. We were well within the time range when changes in behavior could have changed the outcome. There have been some bloggers who have been saying for a couple of years that the BAT wasn't working, that Juniper Ridge needed to be scaled back or mothballed.
The 'Who could have seen it coming!' really doesn't wash.
Pay as you go. They should have made the decision to move to the Bulletin site BEFORE they bought the land. They should have gone to the voters for funding of the BAT, BEFORE they bought the buses. They should have realized that they were dealing with crisis management BEFORE they funded the dreams of "Bend 2030."
I can almost guarantee you that most businesses in Bend approached this downturn in almost the exact same way as the city, though, frankly, probably most of them never really had the reserves in the first place. On the other hand, most of them can make changes much quicker, and hopefully don't have white elephants like Juniper Ridge and BAT dragging them down.
So far, as 'negative' as some people have said I've been, if anything I've let the optimistic, hope for the best, part of me control my message, and my planning.
While the more logical, downbeat part of me was sort of nagging, then shouting at me.
So....
I thought the article in the Bend Bulletin this morning about the Bend Reserves Fund, was a perfect representation of the "Hope for the Best" psychology that dominates at the beginning of every bubble burst. The unwillingness to believe, the inability to change. While your reserves get whittled away.
Actually the emergency that the reserves were created for, hasn't really even begun. We were well within the time range when changes in behavior could have changed the outcome. There have been some bloggers who have been saying for a couple of years that the BAT wasn't working, that Juniper Ridge needed to be scaled back or mothballed.
The 'Who could have seen it coming!' really doesn't wash.
Pay as you go. They should have made the decision to move to the Bulletin site BEFORE they bought the land. They should have gone to the voters for funding of the BAT, BEFORE they bought the buses. They should have realized that they were dealing with crisis management BEFORE they funded the dreams of "Bend 2030."
I can almost guarantee you that most businesses in Bend approached this downturn in almost the exact same way as the city, though, frankly, probably most of them never really had the reserves in the first place. On the other hand, most of them can make changes much quicker, and hopefully don't have white elephants like Juniper Ridge and BAT dragging them down.
Thursday, October 30, 2008
Against the grain?
Was interviewed on Tuesday by Ethan Lindsey of OPB, about Bend business. Fairly long interview, but I know that only a few seconds may end up on air. Still, it's seems like walking onto a minefield every time I do one of these stories. A few mentions in the paper can't hurt too much, but being broadcast just allows me to make a bigger fool of myself.
Anyway, one thing that Ethan said has been gnawing on me ever since: Now, remember, this is my memory, and if I'm getting it wrong it isn't Ethan's fault, O.K.?
He said something like, someone had told him that Bend was the biggest(?) town more than 100(?) miles from an Interstate in the U.S.A.(?) Oregon (?).
Vague, I know. But the basic concept is there.
He said that some people had commented that this isolation may explain Bend's vibrancy.
This seems a little backward to me. If Bend has grown, it was in spite of the isolation, not because of it. After all, if isolation was the deciding factor then there are many many small, isolated towns in America that seem to have missed it.
No, I believe we have gone against the grain.
And I also think that you can go against the grain for only so long before you get tired of the splinters. Much easier to run your hands smoothly down that wood handle with the grain.
Funny the notions we pick up to explain things.
Anyway, one thing that Ethan said has been gnawing on me ever since: Now, remember, this is my memory, and if I'm getting it wrong it isn't Ethan's fault, O.K.?
He said something like, someone had told him that Bend was the biggest(?) town more than 100(?) miles from an Interstate in the U.S.A.(?) Oregon (?).
Vague, I know. But the basic concept is there.
He said that some people had commented that this isolation may explain Bend's vibrancy.
This seems a little backward to me. If Bend has grown, it was in spite of the isolation, not because of it. After all, if isolation was the deciding factor then there are many many small, isolated towns in America that seem to have missed it.
No, I believe we have gone against the grain.
And I also think that you can go against the grain for only so long before you get tired of the splinters. Much easier to run your hands smoothly down that wood handle with the grain.
Funny the notions we pick up to explain things.
Hits and misses.
I've become totally addicted to the premium cable shows, True Blood and Dexter.
See, I missed The Sopranos. I caught one hour of it,once, and it was one of the best things I'd ever seen, so I know I'd like it. I haven't wanted to watch the bowdlerized versions, and haven't quite had the time to rent the entire seasons.
True Blood has one of the best depictions of addiction I've ever seen: the drug pusher is not standing on the corner with a sign around his neck saying, "Hey, Kid. You want a taste?"
No, he's a friendly kind of guy, charming, letting yourself talk yourself into it, with a few well placed bon mots.
But I have to admit, I'm getting a little tired of the 'stupid people acting stupid' southern gothic, Flannery O'Conner, atmosphere.
Dexter is a great show, too. The only real difference between what I saw last year on network is that the swear words aren't dubbed and -- like True Blood -- there is some nudity. Can't see much difference besides that.
So far this year, I've been trying out the new shows Fringe, which I'm getting very disappointed in, Life on Mars, which has great supporting actors and a bland lead, and -- I'm sorry, just completely missing the tone and feel of the early 70's. We taped the Mentalist and the 11th Hour, and have only this week gotten around to watching them.
The Mentalist is the real keeper, this year. Like the show, Life, it has a low-key charm, but rises and falls on its weekly plots. (last week was a clunker.)
11th Hour is kind of strange. More straightforward than I expected. Actually better than Fringe, in most ways, but I'm not quite hooked. I'll give a couple more episodes.
For existing shows, I'm continuing with Life, whose lite charm is starting to run thin, CSI: L.V. (the other CSI's are unwatchable); Heroes, which seems to be all over the place; House, the one show that seems to keep its quality up, with House being a bigger bastard than ever; Sarah Conner, Terminator, which isn't the big surprise it was last year, but still pretty good. And of course I'll watch Battlestar Galactica and Lost if they ever show up again. I've given up on everything else.
See, I missed The Sopranos. I caught one hour of it,once, and it was one of the best things I'd ever seen, so I know I'd like it. I haven't wanted to watch the bowdlerized versions, and haven't quite had the time to rent the entire seasons.
True Blood has one of the best depictions of addiction I've ever seen: the drug pusher is not standing on the corner with a sign around his neck saying, "Hey, Kid. You want a taste?"
No, he's a friendly kind of guy, charming, letting yourself talk yourself into it, with a few well placed bon mots.
But I have to admit, I'm getting a little tired of the 'stupid people acting stupid' southern gothic, Flannery O'Conner, atmosphere.
Dexter is a great show, too. The only real difference between what I saw last year on network is that the swear words aren't dubbed and -- like True Blood -- there is some nudity. Can't see much difference besides that.
So far this year, I've been trying out the new shows Fringe, which I'm getting very disappointed in, Life on Mars, which has great supporting actors and a bland lead, and -- I'm sorry, just completely missing the tone and feel of the early 70's. We taped the Mentalist and the 11th Hour, and have only this week gotten around to watching them.
The Mentalist is the real keeper, this year. Like the show, Life, it has a low-key charm, but rises and falls on its weekly plots. (last week was a clunker.)
11th Hour is kind of strange. More straightforward than I expected. Actually better than Fringe, in most ways, but I'm not quite hooked. I'll give a couple more episodes.
For existing shows, I'm continuing with Life, whose lite charm is starting to run thin, CSI: L.V. (the other CSI's are unwatchable); Heroes, which seems to be all over the place; House, the one show that seems to keep its quality up, with House being a bigger bastard than ever; Sarah Conner, Terminator, which isn't the big surprise it was last year, but still pretty good. And of course I'll watch Battlestar Galactica and Lost if they ever show up again. I've given up on everything else.
Wednesday, October 29, 2008
Huge sales = huge bonuses. But not profits....
I have always assumed that what was true on a micro level, small stores, was probably true on the macro level, large corporations. At least, certain fundamental principles and concepts.
Which is why I have always been skeptical of huge, out-sized profits, and the huge, out-sized bonuses that go along with them.
I've seen this happen over and over and over again through the years.
A new competitor opens, usually with the announcement that they will do business 'right' (thereby implying, I'm doing it 'wrong.') They are newer, shinier, with better inventory and cheaper prices; they are nicer and handsomer than me.
Soon I get reports about how 'well' they're doing, how much money they're making. They are expanding, buying a van, going on trips to trade-shows.
Inevitably, my customers will start to question me: why don't you do such and such, like they do? Look how successful they are!
(Not to get into details, but the answer to every 'why don't you' is always, time, energy, space and money.)
And then, the worm turns.
I start to get reports that "they don't have as much as they used to..."
Or..."the owner isn't there as much, and he's kind of grumpy...) (...and not as handsome, I presume.)
"They raised their prices...."
Heres' what was happening behind the scenes. They were taking those marginal profits and instead of reinvesting in the store, they were churning the money into more product that they turned over fast and didn't make a profit on which they took the money and churned it again.
Or they spent the money on themselves or on unnecessary flourishes in their store.
What they weren't doing -- reinvesting in the future. Getting a realistic margin that allowed them to replace inventory, pay the bills.
It's relatively easy to make short term sales, if you don't care about margins and reinvestment.
Which is why I have always been skeptical of huge, out-sized profits, and the huge, out-sized bonuses that go along with them.
I've seen this happen over and over and over again through the years.
A new competitor opens, usually with the announcement that they will do business 'right' (thereby implying, I'm doing it 'wrong.') They are newer, shinier, with better inventory and cheaper prices; they are nicer and handsomer than me.
Soon I get reports about how 'well' they're doing, how much money they're making. They are expanding, buying a van, going on trips to trade-shows.
Inevitably, my customers will start to question me: why don't you do such and such, like they do? Look how successful they are!
(Not to get into details, but the answer to every 'why don't you' is always, time, energy, space and money.)
And then, the worm turns.
I start to get reports that "they don't have as much as they used to..."
Or..."the owner isn't there as much, and he's kind of grumpy...) (...and not as handsome, I presume.)
"They raised their prices...."
Heres' what was happening behind the scenes. They were taking those marginal profits and instead of reinvesting in the store, they were churning the money into more product that they turned over fast and didn't make a profit on which they took the money and churned it again.
Or they spent the money on themselves or on unnecessary flourishes in their store.
What they weren't doing -- reinvesting in the future. Getting a realistic margin that allowed them to replace inventory, pay the bills.
It's relatively easy to make short term sales, if you don't care about margins and reinvestment.
Random thoughts.
The huge uptick in DOW yesterday wasn't reassuring. It makes it look even more like a casino.
This election has revealed the HUGE gulf between the way I think and the way the 'Joe the Plumbers' of the world think.
While a poker tournament for charity could be lauded, I think gambling is fundamentally a flawed ethical activity. I'm shocked -- shocked! -- that someone who played (presumably) would actually steal the money....
Pronghorn has closed it sales office. Mothball time, folks. You hear that, city councilors? Probably time to mothball JunRidge.
"Is Flashback Cruz too big and noisy for Drake Park?" Err...what I've been saying. These special events have gotten out of control.
Oden out with a foot injury. Curse of Jordan continues....
Turned in my ballot yesterday, and felt a sense of relief.
Part of me expects my credit cards to lower their limits -- that's a pretty big chunk of money on the two cards if I keep them at zero. Even though I'm not using it, I still like to think it's available for emergencies. But part of me thinks they don't have the balls.
Funny thing is, I suspect they are MORE likely to cut my limits because I'm a good risk. If they can't get any late fees or interest off me, than they don't really lose anything. Combine all the good credit risks and lower their limits, and it will look as though they've lowered their overall risk. Meanwhile, the people in trouble can keep their limits because the banks can continue to collect huge fees and penalties. Sort of like the banks who are over their heads get help, the people who got bad mortgages may get help, and people who are gainfully employed often can't qualify for help. Topsy Turvy.
You know, let's keep rewarding bad behavior and punishing good behavior. Keep giving bonuses to the short term thinkers and firing the long-term thinkers. Keep bailing out the bad actors and ignoring the good ones. That should lead to...about what we see now?
Fascinating to me that the government bailout is so huge that it reaches down to the likes of Umpqua Bank and Cascade Bank. Fascinating too, that they look like they'll take the offer. Hey, I thought everything was hunky-dory?
You would have thought all the missteps and mistakes by the city council would have produced a 'progressive' slate of candidates. Instead, it produced the opposite. Candidates who seem to be even more closely aligned with the real estate interests. That's kind of weird. My first inclination was to vote out the incumbents, but given the choices....
This election has revealed the HUGE gulf between the way I think and the way the 'Joe the Plumbers' of the world think.
While a poker tournament for charity could be lauded, I think gambling is fundamentally a flawed ethical activity. I'm shocked -- shocked! -- that someone who played (presumably) would actually steal the money....
Pronghorn has closed it sales office. Mothball time, folks. You hear that, city councilors? Probably time to mothball JunRidge.
"Is Flashback Cruz too big and noisy for Drake Park?" Err...what I've been saying. These special events have gotten out of control.
Oden out with a foot injury. Curse of Jordan continues....
Turned in my ballot yesterday, and felt a sense of relief.
Part of me expects my credit cards to lower their limits -- that's a pretty big chunk of money on the two cards if I keep them at zero. Even though I'm not using it, I still like to think it's available for emergencies. But part of me thinks they don't have the balls.
Funny thing is, I suspect they are MORE likely to cut my limits because I'm a good risk. If they can't get any late fees or interest off me, than they don't really lose anything. Combine all the good credit risks and lower their limits, and it will look as though they've lowered their overall risk. Meanwhile, the people in trouble can keep their limits because the banks can continue to collect huge fees and penalties. Sort of like the banks who are over their heads get help, the people who got bad mortgages may get help, and people who are gainfully employed often can't qualify for help. Topsy Turvy.
You know, let's keep rewarding bad behavior and punishing good behavior. Keep giving bonuses to the short term thinkers and firing the long-term thinkers. Keep bailing out the bad actors and ignoring the good ones. That should lead to...about what we see now?
Fascinating to me that the government bailout is so huge that it reaches down to the likes of Umpqua Bank and Cascade Bank. Fascinating too, that they look like they'll take the offer. Hey, I thought everything was hunky-dory?
You would have thought all the missteps and mistakes by the city council would have produced a 'progressive' slate of candidates. Instead, it produced the opposite. Candidates who seem to be even more closely aligned with the real estate interests. That's kind of weird. My first inclination was to vote out the incumbents, but given the choices....
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