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12 Essential Tasks to Complete before Year End

This presentation was given by Yale T. Dolginow of Elanstrategic on 9/17/13 for the Minnesota Retailers Association and the Minnesota Shopping Center Association.

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12 Essential Tasks to Complete before Year End

legalpad checklist iconGood morning! I want to thank all of you for coming this morning.

It’s especially gratifying for me to be here with you because I truly LOVE retail.  I grew up with it, I studied it, and I lived it throughout my career.  Even now, as a business consultant, I would still give my best putter to be back on the selling floor, hearing the POS ringing up sales.  Retail compels me like no other business: going to market, searching out the next new thing, romancing it with merchandising and marketing and promotion and of course, selling it to a delighted customer.

In 2012, retail was 6.1% of our nation’s GDP.  It supports 42 million jobs.  In terms of our economy, your industry is a very big deal!  In the WSJ this morning, the paper reported that, due to a soft August, 2013, many retailers are thinking that 4Q will be slower than the awful 2009—RETAIL is an important part of total economy & 4Q is the key!

Not that retail has ever been easy.  To the contrary, it’s incredibly demanding and sometimes heart-breaking.  It’s a fast-paced business, with a tough boss: the consumer.  Mobile and digital technology is changing the way we reach that consumer, but retail is still the business of getting products to the people who need them.

I know that you are here today, taking time from your busy schedule, because you want to learn how to do that better – more efficiently, more profitably.  My goal is to send you out of here today pumped and primed to finish your year on a high note, full of momentum and plans for 2014.

My remarks will focus on 12 essential tasks that work for every type of business, which you will need to complete before year-end.  Twelve sounds like a lot, but I’ll group them into 5 functional areas:

  • Accounting Finance
  • Advertising & Marketing
  • Human Resources
  • Operations & Merchandising
  • Planning for 2014

Each of these functional areas needs to be looked at closely to ensure a good year for your business.

Why Plan?

I want to start with a question that is not meant to embarrass any of you or put anybody on the spot.  Just a show of hands, please.  How many of you have a dynamic business strategy and execution plan you are working through for 2013 – something written down that you refer to and revise throughout the year?

That is great!  And if you DIDN’T raise your hand, take heart. You have a lot of company. The truth is that, when I was starting out in business, I didn’t have a real plan either. But that changed because of what I learned over the years, both from experience and from some incredibly savvy mentors.

dolginsbldgsmAs I alluded to a minute ago, I grew up in my family’s retail business in Kansas City. Our family-owned business was Dolgin’s – we dropped the last two letters of our name to fit the sign.  Dolgin’s was a general merchandiser offering 8,600 SKU’s in 21 departments, with a 486 page catalog as its only advertising.

In those days, our planning process revolved around the merchandising process and getting ready for the all-important Christmas season.  My Dad used to say to me that he wished we could be open in November and December and closed the rest of the year, because of course that was when we did the bulk of our business.

dolgins1smHow did we plan for the last quarter of the year?  Our focus was on a catalog designed to drive business during the holiday shopping season.  We spent 4 months developing an assortment of merchandise by category and printing that catalog.  We mailed the book out in August and waited for the customer to come in the door.  In January we started all over again.  Of course, we budgeted for payroll and other expenses, but it was pretty simplistic.  I can’t really say it was very strategic but, luckily, it worked.

We of course had the advantage of selling in-demand brand name merchandise below the suggested retail in a price-controlled market place.  Now many of you have never heard this term, but in the 70’s, the Federal and local governments imposed price controls; we were not supposed to discount merchandise but rather sell it at the manufacturer’s suggested retail.  So if we could not buy from the primary vendor, we bought from secondary sources.  Clearly, this strategy appealed to our customers.  Our average store volume shot up from $1.0 million to $20.0 million.

After my family sold the business in 1976, I moved to Minneapolis and became the COO of Modern Merchandise with stores named LaBelle’s.  So it was the same type of business but with a critical difference: Modern Merchandise was a publicly-held company.  I learned quickly that stronger controls and a more formal planning process were necessary.  I had to keep my eyes not only on the merchandising process but also on gross margin and inventory control. I learned to think beyond one make-or-break quarter a year.

Under my leadership, Modern grew from 22 stores doing $175 million in sales to 69 stores doing $700 million sales.  After we were sold in 1980, I moved on to a very sophisticated company run by the founders of Target, the Dayton-Hudson Corporation.  These guys were REALLY sharp, and I was surprised to hear them say the 4th quarter was not a period where a retailer could change too much. Certainly fourth quarter delivers the profit for the year, but Kenneth Dayton told me that a wise retailer did all of their planning between June and September. What happened during October, November and December, he taught me, was the result of a well-thought-out strategic plan that began months earlier.

wheelsmThe Dayton’s organization had a planning cycle that looks like this.  The hash marks on the perimeter of the graph designate month end, and the red radii are the quarter ends. Planning and review take place each and every month, with a more detailed review at end of each quarter.  So it’s ongoing, not a one-shot, hit-or-miss deal.

September, as you all know, is a key month for those who have their primary season in 4Q.  We can – and should – fine tune” our business plans for the period of September through December.

Thinking in terms of your own business, now, what advantages do we have today, in mid-September that we didn’t have prior to the first of January 2013?  Can any of you give me an example?

Yes, you are correct.  You have your own results and financials from January through August.  You have a better idea about what the government may or may not do that could influence the business.  You have – I hope! — a better knowledge of what your competition is up to and so on.  In other words, there is a lot more information available to you than when you originally did your strategic and execution plan for 2013.  You have two thirds of the year in the bank.

You understand the outside forces that affect your 2013 business plan.

I assume that you have worked on your plan, begun a year ago. You may have made minor adjustments to the plan as you monitored the results of each quarter. You no doubt analyzed the primary controllable areas of inventory, operations and advertising as you moved through each period of the year. And now – with all due respect to Ken Dayton — you still have some time to analyze, evaluate, and correct course in view of your YTD sales, your competitor’s sales, and the economy in general.  This is the perfect time to reevaluate and adjust your strategy and business plan for the fourth quarter.

So – let’s get started on that list of 12 tasks I recommend be tackled now to maximize your year-end results.

Let’s begin with the numbers.

accountingAccounting & Finance

1. Review financial results Jan-Aug

You may not love pouring over the numbers, but as Peter Drucker, a renowned economist and author of The Practices of Management, says: if you do not know where you have been you will have problem knowing where you are going.  At Harvard Business School, Professor Robert Kaplan told us that “that once you know where you are going, it is a lot easier to get there.”

So your first task is to review the financial results of each month from January through August.  Check for trends, review the top line sales.  Compare these results to your plan, to last year, and then look at what you have projected for the balance of the year.  Are your projections still realistic, or do you need to tweak things to maximize results?  You will see that many of the line items of the profit and loss can still be adjusted to take advantage of momentum or counteract unfavorable trends.  Do you need to cut expenses, or increase spending to support sales? Your financial review can have a positive impact on the results you deliver by year-end.

2. Review compliance of loans and promises

September is also the time to think about any outstanding loans.  Review your YTD and projected results through December to make sure you are going to be in compliance of any loan covenant or promises you have made to your stakeholders.  It is better to deliver a message to the shareholders/stakeholders or banker now than to wait until year-end.  Neither bankers nor shareholders like surprises.

3. Tax planning – visit with tax accountant

Your third task is to call or sit down with your tax accountant.  Have your tax estimates been adequate to cover the tax liability or do you have loss and your estimates have been too large?  All this requires is a phone call and review of your P&L from August 30, which you should be sending to him or her on a routine basis anyway.  Your accountant can advise you on what to do now to best position yourself before year-end.  It’s a slow time of year for accountants – they’ll be happy to hear from you.

When you are making this financial review, notice that the largest item on your balance sheet is your inventory.  Is this number where it should be, or are you dragging a bunch of dead weight?  Hold that thought, if you would – I will return to the topic of inventory when we discuss the merchandising function.

OK.  Those first three steps should give you a realistic picture of where you stand so far, and suggest what you might want to adjust while you have time.  Let’s move on to what most of us consider the fun stuff!

Advertising & Marketing

4. Review advertising results and commitments

Advertising and marketing are how we talk to our customers so we want to get it right!  My Dad spent his whole year producing one advertising vehicle, the catalog, to maximize the sales for 4Q.  At Paper Warehouse, we spent 40% of our advertising budget in 4Q.  No doubt you have been planning your advertising campaign for weeks or months.  We now have the opportunity to review the results and to see if there is need to change these advertising commitments.

If you have a budget for 5-digit expenditure or more in 4Q, and let’s hope your business has far exceeded your plan for the completed period, maybe you can reduce this expenditure and move more of these dollars to the bottom line.  On the other hand, you might need to double down on advertising and marketing spend to get more feet through the door or more clicks to purchase on your website.

This is the time to give your advertising calendar and your promotions a final, careful review. Check your media mix for the balance of the year.  Compare your completed advertising schedule and expenditures to your original plan.

Something to keep in mind this year is that Thanksgiving will be a week later than in 2012, so the holiday shopping season is shorter – 4 weekends between Thanksgiving and Christmas instead of the 5 we had last year.

If your sales are lagging behind plan you have three alternatives: cut your ad plan, stay the plan, or increase your investment in advertising. During the slow times of the year, many retailers pulled in their horns and went silent.  My personal philosophy is a bit more aggressive. If you have strong products, services or concepts, you need to keep your message in front of your target audience.  You want to sell your inventory now — it is not the time to crawl into your shell and hope for the best.  You want to execute your media plan, whether it is direct mail, or radio or TV advertising or social media.

5. Generate social media & PR

Remember that reaching your customer does NOT need to cost a lot, especially in this age of social media, Facebook, Twitter, Instagram and email blasts.  If this is where your customer lives, this is where you should be talking to them.

Think also about a way to LISTEN to them.  The digitally equipped customer today wants to comment on everything; they’ll do it whether you engage them or not, so look for ways to interact with them on new media.  You’d be surprised what a little favorable online buzz can do for your business.

Meanwhile, don’t forget to look around for other free marketing opportunities.  Can you take your product or service and talk to the property manager of your strip center or shopping center?  I’m talking about everything from old-fashioned sandwich boards to door hanging advertising. Yesterday, I noticed at my favorite Starbuck’s store, the next door bakery had a sandwich board advertising their delightful sweets—with a line waiting to get into their store.  Depending on what you sell, you might want to try pitching stories to local or even national media.  I say this to you as a guy who managed to get on Good Morning America wearing a Ninja turtle Halloween costume, representing Paper Warehouse.

Next let’s look at your team.

Human Resources

6. Evaluate staffing

Staffing your store is a huge issue: Do you have the right people – and enough of them – in the correct positions?

cashregistersmMy team once hired a key cashier. Unfortunately, we didn’t know then that our December traffic – four times what we saw the rest of the year – would overwhelm her.  She simply couldn’t handle it.  Because we hired the wrong individual, guess who became the head cashier in addition to everything else I was doing?  I was counting cash and making deposits because it had to be done, but my time really ought to have been spent elsewhere. These sorts of mistakes taught me a lot about getting not just the right number of people hired, but getting the right quality person for the position.

balloonssmI also learned the hard way to schedule to meet anticipated demand for special promotions.  At Paper Warehouse, we’d been selling balloons for events, and we hit upon the idea of selling balloon bouquets for Valentines.  We priced them at $.79 and the customers were clamoring for them.  Trouble was, it was taking 15 seconds to inflate each balloon and another 15 seconds to tie them.  The team got hopelessly behind, the customers standing in line got mad, and I got smart!  The next year, we pre-sold the balloon bouquets, and I brought in extra helium tanks and a huge crew at 2AM to do nothing but inflate balloons so they’d be ready when the customers came in to pick them up.  With proper scheduling, we had happy customers and a tidy profit.

Another area that can be easy to overlook is the backroom, and restocking. Back in my days as a young manager, my mother came to me at 9:30 pm, after I’d already worked a 12 hour shift, and asked me and my coworker for our keys.  I am not making this up!  She then locked the doors and told us we were not leaving the building until the shelves were full.  At 2:30 AM – after she personally inspected every bin, shelf and end-cap to make sure they were “flush and full” –she released us with the reminder to be back at 7:00 AM the next day.

Assuming you don’t plan to be locking anyone in your building – and I certainly don’t recommend it! — now is the time to check your teams and make sure all functions are adequately covered.  We obviously did not have adequate staff.  We were “running” the business, not “managing” the business.  Now in September, you still have the time to hire and train.

Speaking of training, make sure your people know the merchandise well enough to answer questions knowledgably.  Nowadays customers often come in the door having done a lot of research online ahead of time.  They want to find sales people who know more than they do about the product or service they’re considering.  Don’t disappoint them!

One final thought on scheduling: you can preach customer service to your staff until you are blue in the face, but if you understaff so they can’t possibly deliver good customer service, your credibility as a leader will be zero.  Similarly, you need to make sure that you have your incentives aligned with your goals, and that your staff has those goals top of mind.

7. Motivate team with goals and incentives

So your seventh task is to remind and promote your goals through the incentive plan with your team.  Now is the time to remind them that the base and stretch plans are reachable if the whole team pulls together to make it happen in this all important 4Q.  Incentive plans, bonus plans, and 401K plans can be excellent motivators if you use them that way.  So talk to your team!  Enlist their support.  Tell them where the business is today and where it needs to be to produce the results that will deliver a profit for all of you. This is the time to do it.  You can get their attention now.

OK.  We’re on the home stretch.

Operations & Merchandising

8. Survey the competition

How long has it been since you shopped the competition? This time of year, you should be there at least once a week. Many of your competitors have already set Halloween and even Christmas, giving you the perfect opportunity to discover if you or your buyers have missed a “key item” or two.  It still may be possible to source them from one of your vendors.

giftwrapAt Paper Warehouse one year, we were planning a big promotion of gift wrap at 99 cents a roll – a great deal.  Or anyway, that’s what we thought, until we learned through the vendor community that Target had the identical plan.  So we scrambled, went back to our vendor and found an alternative gift wrap that we were able to offer for 79 cents – 20 cents less than our big competitor.  That 79 cent gift wrap brought in customers like crazy, and product blew out of the stores.  It was a huge win on a key item at a critical time for the business – all because we were alert to the competition.

9. Review merchandising & inventory

Of course, not everything is going to blow out the door, which leads me back to the largest line item on the balance sheet: inventory.

I have come to see inventory as a very direct and merciless measure of how good a job we did merchandising the assortment.  The two disciplines go hand in hand.  You absolutely must stay on top of your owned inventory.  Double check your planograms and make sure your staff knows how and when you want the merchandise set. A good planogram is designed to get your products out onto the selling floor and displayed in a way that maximizes sales.  What is being featured on the end-caps? Does your merchandising tell a story that will draw in shoppers? Do your adjacencies make sense from the customer’s point of view?   “Why We Buy”, by Paco Underhill, is a great read if you to improve your merchandising display process.

As you know, inventory control can make or break a business in a variety of ways.  In most retail businesses the inventory is the place where we have most of our asset dollars invested.  How many of you, right now, have carryover merchandise from 4Q of 2012 packed up and waiting to be hauled out again?

Don’t feel bad!  We’ve all done it!  But here’s something my father told me that makes a lot of sense.  He said, “We are in the merchandising business, not in the distilling business.  If the merchandise does not sell the first season, remember it is not whisky and will not get better with age.”

WarehouseIf you own pack-up from previous seasons, devise a promotion, a display, and a price that will convert that stale inventory to cash.  We retailers fall in love with our merchandise.  It’s a trap!  Don’t do it!  When I was in the party goods business, I used to think that a pumpkin item was a pumpkin item and it didn’t matter if it was from last year.   Every year, we packed it up.  Guess what? It DID matter. Our “pack up inventory” grew as a percent of total inventory until it became a big reason for the financial difficulties facing Paper Warehouse, Party City, and Factory Card in 2003.  I can tell you from personal experience, banks do not like pack-up inventory and neither do shareholders.

What I recommend is a tough-minded review, right now, of your total inventory.  Break it down by category and review it against what you ideally want to carry over to 2014.  You have a great opportunity to clean out the dead goods during the balance of 4Q.    It is better to have the goods on display with a chance to sell versus sitting in your backroom or warehouse with zero chance. You have to get rid of your dead inventory into dollars.

Sometimes somebody makes a mistake, you overbuy, and you wind up with excess inventory.  At Dolgin’s, that somebody was me.  This was in the sixties and seventies, so we didn’t have the benefit of a computerized inventory. When it was time to buy, we looked up whatever we did the previous year, either on the P.O. or on the vendor’s invoice, and ordered accordingly.  Well, one June I was ordering school supplies, only I missed some of the fine print. I thought I was buying 144 pieces of a 5-hole wide line paper, but what I actually bought was 144 dozen.  For three years, I packed up and stored this inventory. What a boat anchor! Finally, in desperation, I promoted it as a giveaway: buy one get two free.  And I was lucky to unload all that paper at cost.  An expensive mistake I did not make twice.

Every holiday season, it seems, there is a hot item, a Pet Rock, if you will – the one thing everybody wants and you want to order enough of so you don’t disappoint your customers and lose sales.  Can you get more?  Check over your Open to Buy – is it in line? Maybe your buyer says it is under control. Fine, but it is your business, your dollars, and I would check it over.  Large buys and critical seasonal categories where you only have one shot per year to sell a category—you need your eyes on that merchandise.

Another related merchandise task is to make sure you will have adequate inventory to cover the advertising you are going to do for October through December.  I learned this the hard way, too!  We call it the Ninja Debacle.

ninja-costume-smIt was 1988 and we were getting into the Halloween costume business without really knowing what we were doing.  It’s hard to believe today, but until that year it hadn’t been much of a business, certainly nothing like what it is today.  Anyway, we had the right trend – Ninja turtles – and we had the right costume at the right price. What we didn’t get right was the demand. After we featured it on the cover of our flyer the first week of October, our shelves were stripped bare within days, and we found ourselves apologizing to furious moms with wailing children, and scrambling around trying to get somebody to make more in time for trick or treating.  Not a fun October, let me assure you.

So assuming you have selected “hot items” for your Black Friday ad campaign, make sure you have enough or change the ad listings.  There is nothing more embarrassing to advertise this time of the year and not have the inventory to back it up – a surefire way to irritate your customers.

One final note on Q4 inventory: take the time to see where you stand with your “direct import” inventory orders.  Most of this inventory should already be here, but if not, check on the status of the delivery of this merchandise.  Is it arriving on time or do you need to check on feasibility of cutting back? If there is a letter of credit involved? You want to be ready to take action if necessary.

I’ll get off my inventory management soapbox now and say a few things about other operational issues you want to make sure you have covered.

10. Inspect building & equipment

Just like getting your house in shape for a big party, you want to be sure your locations are ready an influx of traffic.  This will be a punch list of small things that together tell your customers you care about creating a welcoming environment for them.  Are your floor mats in good shape? Is everything clean and fresh looking? How’s the lighting?  Are your signs clear and attractive?

Are the POS stations well-organized and stocked with supplies?  Do you have snow shovels and a plan to clear the sidewalks if we get a surprise snowfall early in the season? Do you have proper security inside and out?  Is your insurance coverage up to date and adequate for the increased inventory and staff?

At Target, they call all their customers “guests.”  Would you want to be a guest in your own store?

11. Ensure IT & POS systems are current

Hopefully, all your software and systems are up to date and working well.  September is the time to make sure!  You can’t afford a technological meltdown on the busiest days of the year.  Does your IT team have back-up Point-Of-Sale or register units in the store? Are all the promotional items SKU numbers updated and loaded in your software with proper selling prices, and promotional dates?  If you are bringing on new people for fourth quarter, make sure they have time to master the systems you use.

If you tackle those 11 tasks, you can be confident that you’ve done everything possible to set yourself up for a successful fourth quarter.

So are we done?  Not quite!  Granted, that’s how my Dad looked at it.  But his son is here to urge you not to overlook thinking ahead to 2014.  Those of you who know me know that my favorite topic is planning!


12. Plan ahead for 2014

wheelsmOK, let’s look at the planning cycle I learned from the Dayton’s team again.  If you think it’s too soon to be thinking about this, I want to remind you that the big box retailers are already working on Halloween and Christmas 2014!  Early buys for toys and related direct import commitments start in October and November.  Valentine’s Day orders for 2014 should have been by now. So there’s no time to waste!

You can get started by making certain assumptions for the fourth quarter such as sales by category and what the maintained gross margin is going to be.  A projected-actual sales and expenses have to be developed in order to set the plan for the first half of 2014.  The planning cycle requires gathering all the data that is available and making all the projections so you can.

You have to get your initial plan developed so you can set your projected actual open to buy to take advantage of the trade shows and direct import product lines.  As difficult as it sounds, it can be done.  Remember that any orders that are placed have some leeway for adjustments as you move around the perimeter of my planning cycle.

mindmapbpAs you begin the planning process, I might suggest the use of Mind Mapping with your staff.  The process was taught in my Harvard Business School Owner/President Management class and it is a relatively easy and fun to use to make the process go much quicker.  If you need help, call and I can show you how to use this tool to launch your planning process. You will notice the slide which illustrates the basic details of the business plan.

I could talk for another hour about putting together your business plan, but I want to leave some time for your comments and questions.  I’m happy to speak with you individually later about how I might help you improve your planning and execution for 2014.

In the meantime, you have your fourth quarter To Do list.

Here again are the 12 tasks I recommend.  A lot to think about, I know, but you have a lot at stake, too.  Anything you can do now to assure a smooth and successful fourth quarter will be well worth the effort.

It’s kind of like a marathon. You spend months training. Then comes race day, and it’s just you and those 26.2 miles.  In business, the 4Q is the day of the race.  You want to be ready. You want to cross that finish line a winner.

I thank you for kind attention and wish you all a fabulous fourth quarter!. Remember, we are here to help you execute and to make sure you touch base on all 12 tasks.