Sales flat, profits up. Is it
possible?
Although many things drive the American
economy, it is widely acknowledged that consumer spending (or
lack thereof) is the biggest factor for determining boom or
bust. Furthermore, most economists feel that consumer spending
is driven by consumer confidence.
The thought has been: when consumers feel
positive about the future they are more willing to spend
— when they do not, they cut back on their
spending.”
In an April 2002 article in the Wall Street Journal, Carl
Steidtmann, chief economist at Deloitte Research, compares
consumer spending over the past 20 years.
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Consumer spending was down in September of
2001 but up in October. While Americans were depressed about
the terrorist attacks of September 11, they bought the greatest
number of cars — ever — in October. This was due in
large part to the 0 percent financing offered by auto makers.
According to Mr. Steidtmann, this consumer
spending was driven by cash flow which was bolstered by lower
interest rates, tax rebates, mortgage refinancings and lower
energy prices.
So, how does this explain the current
dilemma of flat or declining sales experienced by most
drycleaners today?
Many economists are predicting that there
will be an increase in consumer confidence, which will lead to
a surge in consumer spending in the coming months. Mr.
Steidtmann’s picture of the future in terms of consumer
spending mirrors what our industry is experiencing today
— flat and/or declining sales. Consumers are cutting back
on their spending because they see their cash flow diminishing.
When it comes to cutting back on expenses
we all look for the easy way. For consumers, it is easy to eat
at home or in a less expensive restaurant to save money. It is
also easy to skip a trip to the drycleaners. The dress pants or
skirt will last another day or two.
In fact, the drycleaners with declining
sales have found that their customers are bringing in fewer
pieces per month. Those with flat sales are finding that,
although their regular customers are bringing in fewer pieces,
these drycleaners have more active customers than they did one
year ago. In other words, piece volume per customer is
definitely down from one year ago.
This situation is directly related to a
lack of disposable cash. Consumers are trying to spend less,
but they want to do it as painlessly as possible. Consumers are
acting this way because they see interest rates rising, fuel
costs increasing and no tax relief in sight on the state or
federal level.
So, how do you as a business owner cope
with a flat market?
Do you lower prices in an attempt to
increase volume?
Do you advertise for new customers by
discounting your services?
Can you, through advertising, force a
market that does not exist?
Do you get back to the business of
managing your business by cutting your costs (you know the
ones) that are eating your business alive?
First, when was the last time your raised
your prices? If you have not raised your prices in the past 12
months, do it today. Raise your prices five percent across the
board. When you do this, your piece count will not change but
your dollar volume will go up five percent.
Next, if your feel a real need to attract
new customers, do it selectively. Advertise in the
neighborhoods where your best customers live and when you do,
don’t give away the farm.
I have been privileged to work with many
very successful drycleaners and they advertise the quality of
their service and work. When they do coupons, they design their
offers to bring in more drycleaning pieces with a total
discount of 25 percent or less.
What about using shirts to bring in
drycleaning? The old adage, cheap
shirts bring in drycleaning, is
wrong.
My management group members charge $1.85
and up for shirts. They do good shirts. The fact is that good
shirts will bring in drycleaning — not cheap shirts. It
costs money to provide quality service and quality work.
Your mission is to charge your customers a
price that will provide your employees with a living wage and
provide a 20 to 25 percent return on sales to you. Otherwise,
why be in business?
Let’s move on to managing your
business. Believe me, I know your customers are different from
all the other drycleaning customers in America. Yes, I also
know that your market is the most unique drycleaning market in
America. Let’s not forget the uniqueness of your
employees — if there was any way for them to do a better
job, they would. If there were any way for them to get to work
on time every day, they would.
Where to trim costs
Again, let’s look at the facts. For
this example, we’ll assume your company is generating a
15 percent profit on sales. That would be $30,000 on $200,000
in sales. Begin taking a real close look at your expenses. How
about that Pitney Bowes stamp machine that costs $70 a month?
What about the window washer for $80 a month —
isn’t there someone on staff who could do this?
Instead of letting your production
employees schedule their own hours, schedule them around the
needs of the company and shut down the boiler earlier every
day. Take a look around and remember that every dollar you save
goes right into your pocket.
Let’s take a look at idle or
non-productive payroll costs. Can you trim 15, 20, or 25 hours
a week from your payroll? Do you guarantee some employees a
40-hour-a-week paycheck? When is the last time someone
guaranteed you anything?
Now, you figure out how to save $1,000 a
month — $12,000 a year. Doing this will require making
some hard, maybe unpleasant decisions. To avoid this
decision-making dilemma, you decide that you will simply
increase sales to hide these costs.
Yes, volume can hide a lot of sins. You
are generating a 15 percent profit. With a 15 percent profit,
how much will you need to increase your sales to earn $12,000 a
year? Answer: you will have to increase your sales $80,000 per
year to earn the $12,000 you can make by cutting costs.
You can take steps to reduce costs and
realize the savings within 30 days. How long will it take you
and how much will it cost you to increase your sales by $80,000
per year? This is a no-brainer!
On a somber note; today, I heard the sad
news that Stan Golomb passed away. This industry icon will be
missed by all.
Remember, in the game of business the more
you know the better you can play the game.
Alan Robson is a private consultant
dealing with the specialized needs of the drycleaning industry.
For more information, contact him by telephone at (508)
753-6619 or send e-mail to him at: alan@bizbuilderonline.com or visit the Biz Builder web site: www.bizbuilderonline.com.
