Slow Growth Economy Expected to Linger
According to expert economists, the Great Recession officially ended in the fall of 2009. Unfortunately, for most craft business owners, it has been difficult to differentiate the supposed end of the recession from the beginning of the recovery over these past three years. Why is that? Most recessions are followed by recoveries that include robust economic growth evidenced by increases in Gross Domestic Product (GDP) of three to six percent during the first couple or three years of the rebound period. Since late 2009, the GDP growth rate has averaged an anemic two percent, and it has actually decelerated over the past several quarters to well under two percent.
Not surprisingly, business and consumer confidence levels have also remained at weak levels. For instance, the Conference Board Consumer Confidence Index (CCI) has historically averaged 93.4 since 1967, but the June 2012 reading dropped to only 62.0. While this is up considerably from the low point of 25.3 in February, 2009, it still remains lower than at any time it was measured during the 15+ year period between January, 1993 and May, 2008. Throw in an unemployment rate of over eight percent and an under-employed rate in the high teens, and we have the makings of continued malaise for the foreseeable future.
The Federal Open Market Committee, led by Fed Chairman Ben Bernanke, provides a good barometer of the health of the current economy. In describing the U.S. economy as expanding moderately (Fed-speak for "not enough") in its 2012 mid-year statement, The FOMC addressed the anemic recovery. "Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated," the cautious statement began. "Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations remain stable." This is hardly a ringing endorsement.
These disappointing economic statistics have caused a very challenging business environment. And while the outlook for the immediate future is not much better, there still is a potential silver lining in this lingering storm cloud. First, you are still in business. This is no small feat. According to Dun and Bradstreet, nearly 180,000 U.S. small businesses failed in fiscal 2009 and 2010 alone. Second, there are a number of steps you can take in a slow growth environment to improve the performance of your home craft business.
Moats-Kennedy also recommends a few key tactics to accomplish the strategies. She defines tactics as "those techniques which businesses use to put themselves and customers on a collision course of recognition." To determine the best tactical approach to attracting new customers, Moats-Kennedy recommends asking three key questions:
|1. Grow Market Share
When it comes to sales growth, flat is the new up in this non-recovery. So, the only way to increase revenues in a slow growth economy is to take away market share from your competitors. This means differentiating yourself in the marketplace. Marilyn Moats-Kennedy, a career consultant (www.Moatskennedy.com) in Wilmette, Illinois, points to a three-pronged strategy when it comes to marketing. First, position your product or service in a particular relationship with a customer who can see its value. Second, price according to value. Third, profile customer demographic and psychographic characteristics and use them to drive marketing tactics. It is important to consider this third part of the strategy by looking beyond those who are currently coming into your store(s).
Whether your primary competition is Wal-Mart, another craft business, or online, you will need to focus on taking away market share if you want to achieve top line growth.
How is the customer's satisfaction enhanced and need met by my product or service?
Who is my competition?
Who can afford to buy my product versus who can benefit from it?
2. Assess Your Employees
One of the benefits of the current high unemployment rate is that there is a huge pool of hungry prospective employees in the marketplace looking for gainful employment. This could provide an excellent opportunity for you to upgrade your employee base without any increase in cost. Better employees will mean better service to your customers. And this should translate to increased sales and profits.
The first thing you should do is make an objective assessment of each employee in your business. As a small business owner, this can be hard to do particularly with those employees who have been working with you for a while. But you really need to make an honest assessment of every employee. And if you have any employees who are constantly late, provide poor customer service or otherwise demonstrate questionable competence, you really should not delay in seeking an upgrade.
How do you find prospective employees? Of course, you can post the usual online "want ads," but it is important to also think outside the box. For instance, when you are out shopping and you run across an employee in another business who provides particularly good customer service, don't be shy about inquiring of their potential interest. They might be working part-time and looking for full-time employment or have other reasons (i.e. don't like their boss, feel underpaid, etc.) to consider a new opportunity. Another great prospective employee pool is your customers. As you talk with customers who you would consider to be competent employees, ask them if they might have an interest in a job. The point is that everywhere you go you might run across potential employees. You won't know unless you ask.
3. Evaluate Your Space
A slow growth economy provides an excellent opportunity to weigh your options regarding your store space. U.S. retail vacancy rates have been running well north of 10 percent for the past several years. According to Reuters, the world's largest international multimedia news agency, "The retail real estate sector has been among the hardest hit in commercial property. At the mercy of consumer spending, the sector has reflected the diverse pressures and changes since the housing crisis began in 2007."
While this elevated vacancy rate has created significant challenges for landlords, it creates opportunities for small business owners. If you are observant, you probably have noticed an increasing level of vacant space in and around the vicinity of your current shop.
There are two key ways for you to take advantage of a high rate of "Space for Rent" signs. First, consider a move. If your lease is nearing expiration, this is the ideal time to consider other options for your location(s). You will likely find that you can improve your traffic count, probably at a reduced rental rate. Or, you will find options that allow you to downsize (at a much lower rent rate), or possibly upsize (if you are pressed for space) for little or no rent increase. Even if your lease expiration is 12-18 months in the future, some property owners hungry for new tenants might be willing to help with your current lease buyout.
|If your lease is nearing expiration, this is the ideal time to consider other options for your location(s). You will likely find that you can improve your traffic count, probably at a reduced rental rate.
If you are happy with your current space, consider negotiating a new lease with your current landlord. For instance, if you are currently paying $15 per foot with two years remaining on your lease, try renegotiating at $13 or $14 in exchange for, say, a new five-year lease. You will be rewarded with a lower lease rate, and your landlord will receive peace of mind that you will stay longer in the space.
4. Cash In On Low Rates
Thanks to Mr. Bernanke, we are virtually guaranteed to have low interest rates at least through the end of 2014. As a result, short term and long term interest rates have been at record low levels throughout 2012. For instance, prime rate (the rate at which banks make loans to their best customers) has been at a record low level of 3.25% since February, 2010, and some financially strong businesses are able to take out variable rate loans at rates even lower than this. Long term rates also are at historical lows. The 10-year Treasury rate (a key benchmark for long term rates) has been hovering at or below two percent for most of 2011 and all of 2012. And the 30-year fixed mortgage rate has been in the well under four percent for all of 2012. Any way you slice it, this is cheap money.
How can you take advantage of the record low rate environment? First, if you have been putting off purchasing fixed assets (i.e. real estate, equipment, vehicles), you will never find a better time for favorable cost of money. Second, consider refinancing current debt. This would be a great time to refinance existing term debt, or term out existing short term debt with a long term fixed rate.
5. Bid Out Your Services
Second, consider other suppliers for inventory. If you have been carrying the same lines for a number of years, you should consider expanding or replacing some of them, particularly if you can obtain similar quality goods at a lower cost. This process may also motivate existing suppliers to consider lowering costs if they think you might move your business.
|In this anemic economic recovery, you aren't the only business owner fighting to keep customers. Your suppliers are in the same boat. And this provides an opportunity to cut costs associated with your craft business.
First, consider bidding out basic services such as health insurance, property and casualty insurance, key man life insurance, utilities (if there are other options), bookkeeping, legal services, and communication services (telephone, mobile, Internet, etc.). Your current service providers may have become complacent, and the very act of requiring them to compete will likely result in lowering of costs in some of these areas.
||If you have been carrying the same lines for a number of years, you should consider expanding or replacing some of them, particularly if you can obtain similar quality goods at a lower cost.
6. Get Outside Help
No question about it, a slow growth economy is a tough time to run a small business. If you want to optimize your revenue and profit potential, this is a good time to seek outside consultation. Of course, you should stay in close touch with industry contacts made at trade shows. They can often share new ideas that have worked for them that are likely to work for you as well. And your banker, CPA, and lawyer can often provide good general business management advice.
Even if you have utilized industry and local contacts considerably in the past, you might have neglected another potential group. Alice Magos writes an online business advice column called Ask Alice for the Business Owner's Toolkit (www.toolkit.com), and she recommends three different resources that many small business owners may not even know exist:
Unfortunately, it is clear that the slow economic recovery is not likely to gain steam anytime soon. But you can survive (and perhaps even thrive) in the current anemic growth environment by following these six suggestions.
Small Business Investment Corporations (SBIC's): Sponsored by the Federal government, SBIC's are public venture capital organizations. These entities aggregate public and private funds to provide much needed venture capital to small businesses. Services include equity capital, long-term loans and management assistance. To find the closest SBIC, check out the National Association of Small Business Investment Corporations website (www.nasbic.org) or call the Small Business Administration's Small Business Answer Desk (1-800-8ASK-SBA).
Small Business Development Centers (SBDC's): SBDC's work with the Small Business Administration (SBA) to assist existing and prospective business owners with management and technical advice. Like SBIC's, these SBDC's are public/private partnerships that join together federal, state and government resources with the private sector and academic resources. While these organizations do not provide direct access to capital, they often can steer a small business owner in the right financial direction, and the small business management, technical, and financial advice is often invaluable. For a national listing of SBDC's, go to www.sba.gov/content/small-business-development-centers-sbdcs.
Service Corps of Retired Executives (SCORE): A non-profit organization, SCORE is funded by and partners with the SBA to provide business counseling to small business owners. The organization includes over 13,000 volunteers in about 350 chapters who offer their experience in advising business owners how to be more successful through online or telephone contacts, mentor relationships, workshops, and seminars. Workshop topic examples include business plans, marketing, and recordkeeping. In many cases, the small business owner can obtain valuable advice from someone with decades of experience in the same industry. To find out more about SCORE, go to www.score.org.
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