Q: Back in the spring, I had to decide how much inventory to buy for fall. That inventory is arriving in my store. How can I ensure a successful season?
A: There are at least three key things to think about – changes in consumer behavior, advertising and promotion strategy and the cash conversion cycle. One difference between this year and last is that you have more knowledge about consumers' response to changes in the economy. What is generally known is consumers are looking for good deals on things they need. They may splurge a little, but today's consumer will tend to avoid conspicuous consumption in favor of perceived value. Therefore, evaluate your inventory and think about a message that will resonate with customers and conform to their new buying patterns.
Q: I have thought about lowering my prices so I can compete against discount stores – but I am concerned about losing money. How can I compete if I have a higher price?
A: Price is very important to those who are living on a tight budget. If you cannot meet their price expectations, they are not your customers. Focus on customers who value products that meet their value expectations: such as friendly service, free gift wrap, convenient pickup and delivery, and guaranteed satisfaction, to name a few. Think about bundling inventory to add value for both you and the consumer. For example, bundle both high and low margin items for a lower effective price. The goal is faster inventory turnover and a reasonable profit margin. Encourage customer loyalty with consistent service and a relevant selection of inventory.
Q: My advertising budget is very small this year. How am I going to get the word out?
A: Advertising is the last expense to cut; that being said, choose your media wisely. First, make sure you understand what customer segments you want to attract – and how you plan to attract new ones. In "The Female Economy," an article published in the September 2009 issue of the Harvard Business Review, the dominant buying power of women is noted. Several industries present opportunities to serve the unmet or underserved needs of women: food, fitness, beauty, apparel, financial services and healthcare. Craft your message around the needs of your customers and use appropriate advertising media to reach them. Don't spend money on advertising that doesn't give you some confidence you will accomplish your objectives. Also, be sure to use free tools like word of mouth, social media and publicity to generate awareness and interest.
Q: Advertising takes cash, much of which is tied up in inventory. What should I do?
A: You refer to the cash conversion cycle. Cash is needed for inventory which then becomes cash again after it is collected. One way to speed up this cycle is to turn over inventory and collection faster. Replacing inventory in smaller lots will help you to avoid holding on to too much. Admittedly, this is a delicate balance, but if you align yourself with suppliers who can accommodate this practice, it will conserve cash. Consider tactics like layaway or pre-paid custom orders. However, even though you may be familiar with the practice of giving incentives for cash payment, be sure you understand the law. For guidance, visit the Washington State Attorney General's office at www.atg.wa.gov/BlogPost.aspx?id=20794.
Janet Harte is a certified business advisor and Clark and Skamania County director at Washington State University's Small Business Development Center.
