the 2% solution. average store scenario a look back
TRANSCRIPT
The 2% Solution
Average Store Scenario
%Net Sales 100%Cost of Goods Sold 60.23%Gross Profit Percentage 39.79%Total Compensation 21.29%
Wages & Salaries 87.34%Payroll Taxes 7.54%
Employee Benefits 4.71%Payroll Service 0.31%
Total Other Payroll Expense 0.11%
Total Occupancy Expense 8.64%Rent 80.14%
Repair & Maintenance 7.34%Utilities 11.67%
Total Other Occupancy Expense 0.11%
Advertising/Marketing 2.08%Telecommunications 0.76%Professional Services 0.54%Office Expenses 1.44%Depreciation 0.97%Travel & Entertainment 0.40%Insurance 0.62%Interest Expense 0.65%Credit Card Services 1.30%Dues & Subscriptions 0.41%Freight Out 0.70%Miscellaneous Taxes 0.44%Web Expenses 0.25%Other Operating Expenses 0.93%Total Operating Expenses 41.44%
Net Income Before Tax -1.67%
Approx.10%
Membership
Participation
301 Locations
Approx. $451
Mill in Sales
ABACUS average of all
ABACUS 2003
197 Respondents
$ 1,500,000
903,418
596,881319,337278,91724,06215,028
980350
129,535103,807
9,51115,115
145
31,137
11,469
8,169
21,577
14,584
6,034
9,355
9,812
19,515
6,136
10,462
6,666
3,800
14,014
621,608
(25,112)
Mythical "average" store in $$$
A Look Back
1993Net Income Before Tax
Percent Change from
Previous Study
1.53%
1994
-61%
0.60%
1995
1.02%
70%
1997
0.14%
-81%
2003
-1.67%
-1293%
1996
0.72%
-29%
Moving from –1.67% to 2%Three Strategies
% $ Net Sales 100% 1,500,000Cost of Goods Sold 60.23% 903,418
Gross Profit Percentage 39.79% 596,881Total Compensation 21.29% 319,337
Wages & Salaries 87.34% 278,917Payroll Taxes 7.54% 24,062
Employee Benefits 4.71% 15,028Payroll Service 0.31% 980
Total Other Payroll Expense 0.11% 350
Total Occupancy Expense 8.64% 129,535Rent 80.14% 103,807
Repair & Maintenance 7.34% 9,511Utilities 11.67% 15,115
Total Other Occupancy Expense 0.11% 145
Advertising/Marketing 2.08% 31,137
Telecommunications 0.76% 11,469
Professional Services 0.54% 8,169
Office Expenses 1.44% 21,577
Depreciation 0.97% 14,584
Travel & Entertainment 0.40% 6,034
Insurance 0.62% 9,355
Interest Expense 0.65% 9,812
Credit Card Services 1.30% 19,515
Dues & Subscriptions 0.41% 6,136
Freight Out 0.70% 10,462
Miscellaneous Taxes 0.44% 6,666
Web Expenses 0.25% 3,800
Other Operating Expenses 0.93% 14,014
Total Operating Expenses 41.44% 621,608
Net Income Before Tax -1.67% (25,112)
% $ 100% 1,650,000
60.23% 993,760
39.79% 656,57019.35% 319,33787.34% 278,9177.54% 24,0624.71% 15,0280.31% 9800.11% 350
7.85% 129,53580.14% 103,8077.34% 9,51111.67% 15,1150.11% 145
1.89% 31,137
0.70% 11,469
0.50% 8,169
1.31% 21,577
0.88% 14,584
0.37% 6,034
0.57% 9,355
0.59% 9,812
1.18% 19,515
0.37% 6,136
0.63% 10,462
0.40% 6,666
0.23% 3,800
0.85% 14,014
37.67% 621,6082.12% 34,962
% $ 100% 1,500,000
56.23% 843,450
43.79% 656,85021.29% 319,33787.34% 278,9177.54% 24,0624.71% 15,0280.31% 9800.11% 350
8.64% 129,53580.14% 103,8077.34% 9,51111.67% 15,1150.11% 145
2.08% 31,137
0.76% 11,469
0.54% 8,169
1.44% 21,577
0.97% 14,584
0.40% 6,034
0.62% 9,355
0.65% 9,812
1.30% 19,515
0.41% 6,136
0.70% 10,462
0.44% 6,666
0.25% 3,800
0.93% 14,014
41.44% 621,6082.35% 35,242
% $ 100% 1,500,000
60.23% 903,418
39.79% 596,88119.16% 287,40387.34% 251,0257.54% 21,6564.71% 13,5250.31% 8820.11% 315
7.77% 116,58180.14% 93,4267.34% 8,56011.67% 13,6040.11% 131
1.87% 28,023
0.69% 10,322
0.49% 7,352
1.29% 19,420
0.97% 14,584
0.36% 5,431
0.56% 8,419
0.59% 8,831
1.17% 17,563
0.37% 5,523
0.63% 9,416
0.44% 6,666
0.23% 3,420
0.84% 12,613
37.44% 561,5652.35% 35,316
"Average" store Increase sales 10% Inc margin 4 points Cut expenses 10%
Combining All Three Strategies
% $ Net Sales 100% 1,500,000Cost of Goods Sold 60.23% 903,418
Gross Profit Percentage 39.79% 596,881Total Compensation 21.29% 319,337
Wages & Salaries 87.34% 278,917
Payroll Taxes 7.54% 24,062
Employee Benefits 4.71% 15,028
Payroll Service 0.31% 980
Total Other Payroll Expense 0.11% 350
Total Occupancy Expense 8.64% 129,535
Rent 80.14% 103,807
Repair & Maintenance 7.34% 9,511Utilities 11.67% 15,115
Total Other Occupancy Expense 0.11% 145
Advertising/Marketing 2.08% 31,137
Telecommunications 0.76% 11,469
Professional Services 0.54% 8,169
Office Expenses 1.44% 21,577
Depreciation 0.97% 14,584
Travel & Entertainment 0.40% 6,034
Insurance 0.62% 9,355
Interest Expense 0.65% 9,812
Credit Card Services 1.30% 19,515
Dues & Subscriptions 0.41% 6,136
Freight Out 0.70% 10,462
Miscellaneous Taxes 0.44% 6,666
Web Expenses 0.25% 3,800
Other Operating Expenses 0.93% 14,014
Total Operating Expenses 41.44% 621,608
Net Income Before Tax -1.67% (25,112)
"Average" store
% $ 100% 1,545,000
59.23% 915,071
40.79% 630,23819.44% 300,364
87.32% 262,277
7.53% 22,627
4.70% 14,132
0.31% 980
0.11% 349
8.22% 126,944
80.14% 101,731
7.34% 9,32011.67% 14,8130.11% 143
1.98% 30,514
0.73% 11,240
0.52% 8,005
1.37% 21,146
0.94% 14,584
0.38% 5,914
0.59% 9,168
0.62% 9,616
1.24% 19,124
0.39% 6,013
0.66% 10,253
0.43% 6,666
0.24% 3,724
0.89% 13,734
38.64% 597,0072.15% 33,231
"Model" store
Sales increased 3% = $18,356
Strategy #1
Contribution to profit
Sales increased 3% = $18,356
Gross margin increased 1% = $15,450
Strategy #1
Strategy #2
Contribution to profit
Sales increased 3% = $18,356
Gross margin increased 1% = $15,450
$16,640
Other expenses cut by 2% = $5,628
Strategy #1
Strategy #2
Strategy #3
Payroll cut by one full time person at $8 per hour =
Taxes and employee benefits reduced proportionately = $2,332
Contribution to profit
Strategy #3
Increasing Sales
Bring More Customers into the Store
Develop a plan for advertising using co-op dollars Implement a public relations plan Build a customer database to
Bring in new customers Bring back former customers Bring existing customers in more frequently
Use your web site as a marketing tool Use e-mail as a marketing tool Do more in-store events Use out-of-store events to reach new customers Reach out to underserved markets and special interest
groups Add amenities that build traffic (e.g., a cafe, a
magazine/newspaper section Improve the store’s visibility (signs, window displays,
lighting) Form marketing alliances with other businesses Join Book Sense
Increasing Sales
Sell More to Customers in the store
Re-model the store to improve traffic flow and displays
Improve merchandising
Introduce a customer loyalty program - customers will spend more of their book dollars in your store and you will build a customer database with purchase data
Bring in other merchandise (cards, gifts, etc.) for “add on” sales
Sell more gift cards/gift certificates
Increasing Sales
Sell more Outside the Store
Do out-of-store events
Incentivize Web Sales
Sell to corporations and institutions
Increasing Margin
Bring in higher margin merchandise (e.g., remainders, sidelines, used books)
Move high margin merchandise to high traffic areas
Give high margin merchandise more space
Increase purchasing discounts Buy more direct from publishers Plan ordering to maximize discounts Order electronically to receive EDI discounts Take advantage of stock offers Take cash discounts from wholesalers
Reduce freight costs
Plan buying to meet free freight minimums Use vendor of record programs to get free freight on books
from smaller publishers Participate in ABA’s freight program?
Reduce inventory shrinkage Use security systems (cameras, security gates) Change store layout to deter theft Train staff in security procedures Take steps to reduce employee theft Prosecute thieves
Promote & Sell more gift cards
Increasing Margin
"Average" Gross margin and Gross Profit
"Average" store sales $1,500,000
ABACUS average gross margin 39.79%
Gross profit at ABACUS average gross margin $596,850
Improvements to Gross MarginBring in higher margin merchandiseReplace 5% of book sales with sales of other merchandise
with an average margin of 50%$7,658
Buy more direct from publishersSwitch 5% of purchases from wholesalers to publishers at
an average discount gain of 4%$3,000
Order electronically to receive EDI discountsMake 10% of purchases through EDI at an average
discount gain of 1%$1,500
Reduce freight costs Reduce freight costs by accumulating orders for free
freight minimums and using vendor of record programs$1,000
Reduce inventory shrinkageReduce inventory shrinkage from 2% of sales to 1.75% of
sales$3,750
Additional gross profit $16,908New gross profit $613,758New gross margin 40.92%
Difference 1.13%
Increasing
Margin
Reducing Payroll Costs Use payroll budgets
Set a payroll budget for the whole company and for each department
Set budgets as a percentage of sales
Match schedules to payroll budgets
Budget by the month or season
Reducing Payroll CostsSchedule efficiently
Schedule according to store needs, not employee preferences
Use a written schedule showing all staff so that you know exactly how many staff are available at all times
Use overlapping shifts to cover peak hours and lunch breaks
Use “back office” staff to cover peak hours and lunch breaks
Replace 8 hour shifts with shorter shifts Judicious use of part-time staff Cross training - No specialists Design a user friendly physical layout Outsource specialized functions Adjust store hours during slow seasons
Reducing Payroll Costs
Control pay rates and raises
Set pay scales for different positions, with a pay cap for each position (no more raises once someone reaches the cap)
Make sure that raises fit within the budget
Tie raises to increased responsibility or cuts in overall staffing
Replace raises with profit sharing
Reducing Payroll Costs
Control overtime
Insist that all overtime be pre-approved
Put managerial staff on salary
Schedule full-time employees for less than 40 hours a week
Use more part-time staff
Use “on call” staff to cover employee absences and special events
Reducing Payroll Costs
Make your staff more productive
Use technology to improve productivity
Streamline purchasing, receiving, returns and accounting systems
Cut out unnecessary or duplicative procedures
Limit sales calls from reps
Training is the key
Reducing Occupancy ExpenseRenegotiating your Lease
Know that rent is going to be a problem before it becomes a problem
Project sales for the coming year based on current trends and known future changes (e.g., a superstore opening)
Know how much rent you are supposed to pay in the coming year (check your lease for scheduled rent escalations)
Calculate how much rent will be as a percentage of projected sales. Remember to include additions to rent such as common area maintenance (CAM) charges
Know how much rent you can afford to pay (make a projected P&L for the coming year)
Refer to Industry Standards ( ABACUS)
Reducing Occupancy ExpenseRenegotiating your Lease
Calculate exactly how much of a rent reduction you will need
Remember to check your lease for scheduled rent escalations – you don’t want to be going back to ask for another reduction in a few months time
Give your landlord plenty of notice that you will need a reduction
Property owners tend to plan their finances well ahead and don’t like surprises
It can take a long time for a property manager to get approval from owners
Giving notice shows that you are a responsible tenant
Reducing Occupancy ExpenseRenegotiating your Lease
Do your homework
Find out the market rate for your space Ask real estate brokers what comparable spaces are renting for Ask neighboring tenants what they are paying
Find out if your landlord has given rent concessions to other tenants
Ask neighboring tenants and real estate brokers
Collect articles/studies on the retail environment in your area
Reducing Occupancy ExpenseRenegotiating your Lease
Make your case
If sales are down, explain why Focus on causes that are outside your control (e.g., a
superstore opening) Focus on causes that are within the landlord’s control (e.g.,
you are in a mall that has gone downhill)
Explain what you are doing to help yourself (e.g., bringing in new merchandise, advertising more, cutting
expenses)
Show how much rent you can afford to pay Use industry studies such as ABACUS to show how much rent
bookstores pay Use a projected P&L to show that you need a rent reduction
to stay in business
Stress how responsible you are being in addressing the issue before it becomes a “problem”
(Landlords live in fear of tenants who declare bankruptcy in order to renegotiate rent or get out of leases)
Mention the cost of finding a new tenant if your business fails
(e.g., lost rent while the space is vacant, brokerage fees, “build-out” costs)
Reducing Occupancy ExpenseRenegotiating your Lease
Be realistic
Don’t ask for an unrealistic rent reduction
If your landlord won’t reduce the scheduled rent, ask for
a “temporary abatement”
Know whether your problem is temporary or permanent
Reducing Occupancy ExpenseRenegotiating your Lease
Offer something back
Offer to pay percentage rent if sales are better than expected
Offer to pay a higher percentage rent over a fixed “break point”
Offer to “back load” rent if you think that business will improve
Offer to give back some space if you have more than you need
Offer to make improvements to your space