Are you ready to solve a mystery? Come on now! You might get something out of it; but at the least, you’ll have some fun.
This is a puzzle to actually make you question whether or not you really know what’s going on in your business, OR, are you just falling for the industry line and playing ‘Follow the Leader’. And if you are still in the back of the herd, where is the leader headed? The leaders’ line hasn’t been doing well lately. Are you sure you’re in the right line?
To set up this ‘puzzle’, let us assume these people, all 100 of them, represent the first set of employees that worked in your company when you got started in business.
In this particular case, imagine you were not sure how these people came to be on your payroll, other than some employment agency gave them stellar recommendations, sent them over, and you started handing out checks.
You had told the agency these people would work in your stores, and your only necessary requirements for hiring them was that you expected them to make you money, they should always come to work on time, dress decently, and be respectful to your customers. Well, most of them anyway.
As time progressed, things seemed to be going well. Payroll went up slightly, mostly due to inflation, taxes inched up gradually, so did electricity, water, sewer, trash-pickup… increases in costs appeared to be slight, but the time between those increases began to shorten… Nevertheless, as far as you could tell, things were pretty much ‘okay’ all around.
A few years later, your accountant called and asked you to come to his office for a chat. To your surprise, the numbers were all over the place; but basically, the simple fact, as explained by your accountant, boiled down to ‘these employees’ weren’t making you enough money for you to continue to stay in business’. It was decided the answer to the problem was to either attract more customers, or hire more employees.
You were thinking, ‘attracting more customers has been an ongoing practice for all these years we have been in business. Nothing really new to do in that area.’ So, you and your accountant agreed the hiring of more employees seemed to be the easier of the two solutions, especially since someone else would do the hiring for you. All you had to do was call the agency and tell them to send more people.
Your logic for doing so was, ‘If 100 employees are earning me a sum of money, as unacceptable as that amount might be, with all other things being equal, 200 employees would earn me twice as much, three times would earn me thrice as much,’ and so on and so forth.
Do you get the picture? It sounds logical doesn’t it? It’s a simple equation really, ‘more employees generate more income’.
In no time at all, employees are observed standing on scaffolding and hanging out of windows to get more oxygen. Looking back, it sort of reminded you of the job of herding cats.
Of course, doubling employee count did not double sales, because some of those insignificant expenses—water, sewer, electricity, etc. became more and more significant.
Yes, unforeseen circumstances came along: the air-conditioning bill skyrocketed. Gotta keep those employees cool, else they might get sick and my insurance rate might increase. They did get sick as usual, and the insurance rates did go up. Not necessarily due to the increase in illnesses. Insurance rates just go up, mainly because that’s what they do.
Employees became cramped and a possible violation of the fire codes reared its ugly head; so, you knocked out a wall to give them room to breath. More unexpected expense.
Your wife convinced you to buy that mansion on the hill, appearances dictated you trade in that Chevy II for a Mercedes. Your assumed good fortune in the community meant you had to pledge more at the church, sponsor the local high-school baseball team, send your teenager to the best schools, and take that trip to Europe you had promised your wife when you convinced her to marry you.
The very next quarter, you guessed it; you’re back in the accountant’s office again. Now it seems more serious. “You need to hire an efficiency expert to come in and appraise the situation,” your accountant cried. “The problem has gone above my pay grade. I have no idea what we need to do next.”
Finally, you did what you probably should have done all along. You brought in an expert. The analysts determine that your business has grown to 4,000 employees and 600 of them have expired. They’re still there. They are just kind of dead, that’s all.
Some still show signs of life, but are the worst for wear; however others still presented themselves rather well… stone dead or not. Your analysts suggest you call the morgue and have them carted away.
“It’s the agency’s job,” you scream.
“Yeah, but it’s yours now,” the analyst argues. “The agency says they don’t have anyone to pick them up. Besides, everyone is looking for a way to cut cost.”
“But, it’s not all bad news,” the analysts says. “We found 1,200 that are actually working like the dickens and making you some money.”
“Wow! That’s good,” you perk up.
“No, that’s bad,” replies the analyst. “That means the other 2,200 employees, oh, they’re out there alright, I can hear them breathing; but, it’s anybody’s guess as to whether they are working, or just lounging around the water cooler, consuming your water and basking in the breeze that’s coming from the air conditioning.”
At this point, common sense tells us what needs to be done. We should give the 600 expired employees a decent burial, pat the backs of the 1,200 that are doing their jobs, and read the riot-act to the others.
Now, if we exchange employees for inventory, this is exactly the way the convenience store industry has evolved over the past 50 years. So 10-15% of your stock is dead, 30% is making you a profit, and who really knows what’s going on with the other 2,200 items?
I’ve heard all kinds of excuses as to the how those 2,200 items are making the store look full. I can even see a little bit of validity in the notion. But, who cares? If the vet bites down on the mule’s ear hard enough, he doesn’t notice what’s going on elsewhere. You are being flimflammed, and all you have to do is to follow the money.
Like the story above, you would be better off with less dead and non-performing inventory and stop using it to decorate your store. But, how do you do that if you allow Category Management policies to prevail?
You need to go through you stores, pick up each little item and shout, “What in the Hell have you done for me today?” I’ll bet you a buffalo nickel you’ve got $50,000 worth of junk in every store that doesn’t need to be there. Can you really afford to keep caring for it any more?
Non-selling stock is responsible for over 50% of your cost. It would serve you better in a big hole in the ground behind your store.
Those 2,200 brands plus another 600 that are dead make up just the tip of the iceberg.
How many of those total 2,800 brands have multiple units? If you only have two of each, we’re talking about 5,600 freeloaders sitting around burning up your cash, 24- hours each day, 365 days a year. The waste is absolutely despicable.
How much would you agree to pay to solve these problems and about a dozen others that are threatening to hamper your ability to stay in business? Is your perception too high? Well then, how about a ONE-TIME cost of less than $500?
Over the next 30 days, I will finalize a plan of action that will revolutionize the convenience store industry and other kinds of small to medium-sized retailers, and their suppliers. It will also take into account the Amazon and Walmart problem that is threatening to put all of us in a precarious environment. My intentions are to increase you sales and profits while reducing your use of operating capital by 63%.
You owe it to yourself to watch for this.
Over the next six months, the offering will be somewhat limited. We will be seeking serious minded retailers and suppliers who are most interested in change. The size of your company is of no importance. Mom & Pop businesses are welcome.
If this appears it might be of interest to you, you can write to me at BillScott@StoreReport.com and I will reply with a free PDF of my book “Retail is Detail.” It will give you some idea of what this program is all about, and it WILL NOT obligate you in any way.