There’s an old story in the ad business about a man who ran a hot dog stand. He did really well selling his hot dogs. One day, a customer mentioned, while adding mustard to his hot dog, that he felt there was an economic downturn looming. The hot dog stand owner decided he’d better prepare for the worst so he immediately fired his helper, switched to lower quality wieners and stopped advertising. Sure enough, business dropped off and he finally had to close down. “It’s a good thing I was prepared.” said the hot dog stand owner, as he signed his bankruptcy documents.
The fact is, that when times become tough, the first thing many business owners do is stop marketing, and lay off staff. This most likely means there will be fewer customers coming in and fewer people to serve the ones that do show up—a good recipe for disaster.
This is what the Brick found out recently. We’ve always thought of The Brick (“Nobody beats The Brick”) as more of a finance company than a furniture company, but it’s certainly true that between it, Leons and Chinese imports, furniture retailing has fundamentally changed in this country.
The sector is worth $17 billion dollars a year, but profits are thin and the market is highly fragmented. The Brick has about an 8% share, and lost a ton of money in both 2008 and 2009.
But rival Leons, while facing slowing store sales and profit declines, were still making money. How come? Because The Brick made some decisions that seemed like a good idea at the time, and nearly drove their business into the ground.
Look at what they did and see if you would have done the same thing. We bet most of you would—and we bet you would face the same bad results.
The Brick “saved” money by chopping advertising and laying off hundreds of sales staff. As a result, store traffic tanked. Fewer customers came into the store, and those who did come couldn’t find the help they needed, so they didn’t buy. Not enough commissioned professionals on the floor selling meant revenue dropped even lower.
Lax controls chewed up cash. Inventory did not match customer demand–too many items that didn’t move off the floor, too few of the high-demand items. The result: long delivery times that annoyed customers and kept them from coming back. And following that, problems with supplier credit, as inventory turns slowed and inventory costs rose.
New Brick CEO, Bill Gregson figures that only ten percent of the company’s troubles were due to the recession. The real culprits were the wrong stock in the showroom, no expert sales staff on the floor, no advertising to get customers in the door and lax inventory and supply chain controls.
He’s figuring on a fast fix (their August long weekend sales were way up), by fixing inventory levels, hiring back the staff, running more ads and finding economies in some novel ways like holding inventory at the manufacturers rather than the Brick warehouses.
We are not saying you can’t find real economies by reviewing your staffing, inventory and advertising practices; in fact, much of what we do for our clients is to make these processes more efficient.
We are saying that it’s easy to “cut off your nose to spite your face” when you cut the very services that bring business in the door. Bottom line is: when the economy is bad is the time to increase your marketing and upgrade your service. Do so and you’ll be way ahead when the good times are back.