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Monday, October 31, 2016

Who Turned Out the Lights?

Can this election just be over?  There is always a pronounced negative effect on retail sales during the U.S. Presidential election years, because consumers value certainty.  There will be a boost in sales no matter who wins.  (Hillary Clinton is going to win.)  In 2012, Desert Sky Games was still newly opened and did not expect much in the way of sales.  In the four years since, we developed a very accurate idea of what we expected.  And a curve ball showed up anyway and shot my careful planning straight to hell.
Every November, the comic and hobby game trade slumps.  The first half of the month is just dismal, with sales figures that make late February look bountiful by comparison.  The lights go back on somewhat going into Thanksgiving week, then Black Friday and Small Business Saturday, only for sales to quiet down again until mid-December, at which point it's like a firehose of money spraying our faces until a week into January.

Why does this slump occur?  There are several contributing factors:

  • Consumers save up for holiday shopping.  Obvious enough.
  • Public employment finishes much of its work for the year, because so many government workers take a lot of vacation/leave time in December.  This means people are nose-to-the-grind right now, and not out shopping and recreating.
  • Colleges are in go-time, with fall-semester finals on the horizon.  Not the best sales stimulant if you sell a product that appeals to college students.  You know, like strategy tabletop games.
  • High schools are in go-time, with second-quarter finals on the horizon.  It seems like most districts have normalized this now; when I was in high school, finals were after Christmas break and that made for quite the welcome-back.
  • Specific to our industry, the biggest release of the year, the Magic: the Gathering autumn expansion, lands right at the beginning of October, and now all the credit cards are coming due, forcing belt-tightening.


By the end of October 2015, Patrick and I were battening down the hatches for the dry spell we knew was ahead.  We reduced our Magic buy ratios, we decreased the restock volume for most product lines, we dropped the payroll budget by an increment, and we loaded up eBay full of fresh merch to clear.  And despite all that we were still sweating the bills by Thanksgiving week.  We were still missing out on some good opportunities due to having to dip into our war chest of buying funds just to cover operating expenses.

This year was going to be much the same, but then the plunge occurred almost three weeks early.  A curveball I truly had not anticipated.  In-store sales dropped off sharply enough that I wondered if a competitor had gotten in a shot on us.  No, it looked like Magic sales were still substantial, if a bit lower than last year's pace, and there isn't any other competition nearby impacting anything else.  The missing revenue would have come from board games, miniatures, and comics, none of which performed.  The ensuing week was a bloodbath that saw me dip into reserve fuel to an uncomfortable degree.  The weekend was back to average, so I figured that was just a blip.  I set up to accelerate some of our overstock, closeout, and ding-dent sales and specials to cover the shortfall.

The following week came in a bit below average.  Not enough to get us healthy but enough that I could still pay all the bills.  I did our finances and figured that as long as we weren't much worse the following week, we could lean on our weekends and buoy that safely into the November slump.  All would proceed as expected.  I ordered very light from distribution knowing the terms would be due for those orders the same week rent came due.  I amped up eBay a bit and even solicited out some Pokemon overstock to fellow retailers. In theory every hatch was sufficiently battened.

And then we lost a weekend.

It was uncanny.  The weekend of October 22nd-23rd turned in numbers like average weekdays did in September.  It left the store around $6,000 short of projected revenue.  The scramble was on.  I know a few things about moving money around and we got through the week, but oh man, I was sweating it.  Terms that week were from orders placed before the early slump of the week previous.  So they were still hefty.  I had two large cash buys come in the door that I was not going to pass up, even though that meant expending precious reserve fuel at a time I was burning it for heat and light.  This was the correct call, as the buys were Standard relevance and hot video games and both sold through quickly.

There's a mentality in business that if you can just get the doors open another day, you can get healthy again.  It is truly difficult to knock a store down hard enough that it can't get back up.  It happens, especially if a Taxmageddon scenario ensues, or some insurance or crime disaster like the Atomic Comics flood that vastly exceeded their insurance, but usually a closure is not because of those things.  Usually a small retail closure is the result of prolonged decay.  When a wave of shocks like our second half of October hits, even a modest store has a resource base to draw from.  First cash, then credit, then inventory, and finally equipment.  If it came to it and I needed half a grand in thirty minutes and the cash register was empty, I could rip one of the computers out of the till fixture, peripherals and all, and take it to a pawnshop up the street.  That's a horrible, value-eviscerating way to survive, but it is survival.  And then you can open the doors another day.  After a store has spent a year or two withering, its resource base has rotted from the core.  The first shockwave puts the store onto the metaphorical defibrillator, as there is nothing to reach for to withstand it.  If a second shockwave hits, it results in constables posting legal notices on the front door and padlocking it shut.

Last week commenced, and by Wednesday's close it was pacing to be the store's worst week of 2016.  It closed as, in fact, the worst week since at least mid-June when we switched to our current POS, before which comparisons are not precisely apples-to-apples.

Sigh.

One thing I learned in my previous times in business was that if you have to take a serious step to ensure you have stopped the bleeding, take that step right away and get the recovery started as soon as possible.  Thursday I went ahead and engaged in a Reduction In Force (RIF), laying off three part-time employees.  I did not want to lose them and I made it clear to them I hoped to recall them at the earliest possibility.  But with special sale promotions already happening and categorical moves addressing our structural inefficiencies, payroll was the next expense available to cut.  I hated to do it, but I went ahead with it.  I suspended my own pay as well; in essence, I am always my own first layoff.  I am the owner; I will know when the coast is clear again for me to take a disbursement.

Things followed the RIF about as I had hoped.  By the end of that same day we had turned in a much better sales figure.  Friday was within reach of normal.  Halloween ComicFest was kind of a dud, but we rustled up almost enough Saturday sales to close the gap.  Sunday was an expected throwaway due to its positioning between the two holidays of Halloween (Observed) and Halloween (Traditional).  Gradually, excruciatingly, we clawed our way forward.  The sales trough is far from recovered, but by Monday we knew that rent and payroll and bills were safe and dealt with.  I don't know how soon my three lost soldiers will get their evac copter sent out, but now at least I know I will be sending one.  The reduced staff level won't become the New Normal, which would have been an outcome I did not want.  Instead, the lean staffing will end just before the seasonal slowdown does, giving me time to ramp into the insanity of holiday shopping.

My next two months of work are basically set at this point.  I've finished optimizing the primary retail area, which I'll have some photos for the blog at some point I hope, perhaps when there is some sweet signage in place.  I'm about to construct a new tertiary retail area for higher-value video games and for our unified buy counter.  That will be effectively the final bitter end of work I will do on the present Gilbert facility unless and until I get a lease renewal or extension.  Then it's just sales, sales, sales.  Which will be a nice change of pace from an entire year of almost constant upheaval.

I am one of the lucky ones.  So many stores announced closures in the past two weeks.  Huge, titanic businesses announced they were shuttering or selling out.  Everyone from The Happy Viking to Game Universe to Your Mom's Basement to West Texas Cards & Games, and the bloodletting appears far from over.  System outages for our point-of-sale, Crystal Commerce, cost us thousands of dollars in revenue, and for many stores that was the straw that broke the camel's back.  In a market rife with dreamers willing to burn capital right in their faces to poach market share, they looked at their stock, looked at their lease, and decided the money ended up better if they yielded the floor.

One postscript I want to leave you with today.  There is a book called A Civil Action by Jonathan Harr.  It is a documentary-style novelization of the events of the case Anne Andersen et al. v. W.R. Grace et al., the vast toxic waste leukemia litigation of the late 1980s from eastern Massachusetts.  It was eventually made into a decent movie starring Robert Duvall and John Travolta, but only the book is relevant to my point here.  In the book, the law firm's financial manager James Gordon has to find ways to pay vastly escalating bills and expenses while the flow of cash into the business slows down, sputters, and finally stops outright.  Gordon becomes a veritable maestro of acquiring and leveraging credit, from the straightforward to the seemingly foolhardy.  But he had to find solutions so the case could go on, and when it finally settled, he paid back the creditors and his "wobbling pyramid of debt service" was redeemed.  Even though their situation was to an extreme that virtually no small business will ever reach, it is an educational clinic on handling the dirtiest part of the financial minutiae in stretching every last dollar and avoiding the financial breakdown of a business.

One of Gordon's lessons that left the deepest impression on me was, paraphrasing, "Don't lie to your creditors, ever.  Don't mislead, don't omit information, don't avoid them, don't color it up."  Tell them exactly what is going on and what you will try to do, and come as close to meeting that commitment as you can, and then continue to try.  This is crucial because once you mislead a creditor in any way, they can no longer help you.  They cannot extend, they cannot make allowances, because you broke their ability to trust you.  When I am in a tight spot financially, long before the point of default, I communicate with the creditor and tell them what is going on.  Not making excuses, but reporting the situation accurately and reaffirming that your intention is to pay them in full.  You would be surprised at the amount of grace that buys me.  And when I get that done, now they know I am good for it in the future.  You want to know how to build a business that can make big financial moves and weather a storm if one moves in?  That is how.

On that note, I'll go back to slinging what merch I can in the dark until the retail lights turn back on.  Anyone want some sweet board games, nicely discounted?

2 comments:

  1. This was a great read! Lets me know I'm not alone in the struggle and even left me with a lesson

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  2. I work for a national corporation in a similar trade as you (you know which), and even we were shedding payroll the last two weeks. Our storm is incredibly different than yours - one item vastly under-sold, another incredibly oversold and we were not prepared with enough product, and as you mentioned, the pre-election doomsday belt tightening - but we are feeling the pinch as well. Our lights don't shut off, but its not just the small idnependents that are getting punched in the proverbial gut.

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