MARKET WATCH: Financial Q&A Forum

Jeff Harbaugh Friday, November 21st, 2008 | 1,191 views |

On Monday, November 24,Transworld Business provided a forum for those with questions about their business, finances or just the overall state of the economy. Industry vet Jeff Harbaugh, who has been writing financial analysis for the industry-specific column “Market Watch” since 1991, provided answers throughout the day to some great questions from our readers.

Jeff Harbaugh has more than 25 years experience as a manager and consultant, helping companies identify critical issues that impact performance. For more information, visit www.jeffharbaugh.com.

Tags: economic conditions, financial news, jeff harbaugh, Market Watch

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Jeff Harbaugh November 22nd, 2008 - 12:26 pm

Good morning. This is going to be fun. Assuming of course somebody posts something. I have a couple of ground rules I’d like you to consider.

First, it is okay to disagree. That’s how we’ll all learn a lot. But let’s do it with respect. Just because somebody doesn’t share your opinion doesn’t make them an idiot.

Second, it is particularly okay to disagree with me because that will make me think and I’ll learn a lot more.

Third, this is not the place to promote your product or trash somebody or some company.

Fourth, my name is on everything I write. Yours isn’t, but I’d like you to write whatever you post here as though it was.

Finally, I’ll try to answer every serious post but it will depend on how many there are and I may not get to them immediately.

Thanks Transworld for giving me the chance to do this, I think.

YEAH RIGHT November 22nd, 2008 - 3:33 pm

what do you think of volcoms stock over the next year? Does their price have more to do with retail in general? It doesn’t appear that they have to much inventory so that would be positive right?
thanks

Jeff Harbaugh November 23rd, 2008 - 10:29 am

I have no idea what Volcom’s stock price will be a year from now. Neither does anybody else no matter what they tell you. I can tell you that something like 75% of stocks, and maybe more, follow the market’s general direction. So to that extent the decline in their stock price is partly to largely the result of general economic conditions, or at least of what those conditions are developing into.

The inventory issue is important, but it’s a bit more complex than less is good. Whether business is good or bad, what you want to have in inventory is the stuff that sells best at the highest margin. Easy to say, not so easy to do.

Generally, I’m sure everybody (brands and shops)is reducing their inventory consistent with their sales results and projections. In these economic conditions, you want to manage by your balance sheet (which reflects your cash flow) and not so much by your income statement. If you have inventory that isn’t moving, sell it for whatever you can get for it regardless of the impact on your income statement. If you can’t sell it, donate it and take a deduction (assuming you’re making a profit). Old inventory never gets more valuable no matter how long you wait to get rid of it.

Look at your gross margin dollars for each item and your gross margin percentage as well. What I mean is that it’s great if you have an item you make an 87% gross margin on, but who cares if the item sells for $1.00. You want to manage your inventory (in good and bad times) so that you maximize the number of gross margin dollars you end up with.

Uh, I guess I got ranting and raving and didn’t exactly tell you what I think about Volcom stock. Sorry.

Broke Bro November 24th, 2008 - 7:03 am

Jeff,

Thanks for coming here and answering questions. I’ve been reading your column for a long time and it’s very cool to have a resource like this in times like these.

I’m curious about where you see consumer spending headed over the next 5-10 years. Has this country really changed the way it looks at debt, or will it be back to maxing out credit cards as usual once the credit crisis passes?

As a retailer I like the “max and spend” concept. But I honestly don’t see how the economy can function long-term based on consumption rather than production.

Thanks again,

Mark

Jeff Harbaugh November 24th, 2008 - 8:51 am

Well, I begin to see the down side of agreeing to do this. Too many good questions that could each take hours to answer assuming I had a firm answer.

Consumer spending will start to go up again, and it won’t be five or ten years. But it may not be next year either. And when it does start to go up, it will be from a lower level and I don’t expect it to accelerate quickly.

The economy and the stock market more or less went up from 1982 to 2000. 18 years. Then the tech bubble broke. When that happened the Fed cut interest rates down to 1% and injected a bunch of liquidity in the market to keep the economy moving. That lead (it’s more complex than this) to the housing boom which, as I’ve written before, was responsible for a lot of the economy’s growth through 2006 because people could take huge amounts of equity out of their overvalued homes and spend it. Which they did. We would have had some years of flat to down economic growth before now if it hadn’t been for equity withdrawals. Now, home equity withdrawals are literally almost zero.

An Associated Press article this morning reports consumers cutting back on credit card use and paying with cash or debit cards. It says that J.C Penney has been seeing swings in spending around payday cycles for the first time in 17 years.

There is a huge deleveraging process going on- for consumers, businesses, and banks. It is going to take a while to work its’ way through the system. I don’t know how long that will be, but it won’t be just a few months. People are going to be forced to save after we’ve had a savings rate of zero or less for years. Will we ever see people maxing out their credit cards again? Sure. Someday. But why is it so easy to notice we went up for 18 years but so hard to believe that it might take a few more years to work through this? Regression to the mean, like the statisticians say.

Colin November 24th, 2008 - 7:13 am

What impact could Quicksilver’s stock price have on DC Shoes? It seems like (and it could just be the advertising working) DC is doing very well. Being a skateboarder, I don’t have the exposure to the surf industry…. thanks for the insight!

- Colin

Jeff Harbaugh November 24th, 2008 - 8:56 am

Colin,
I don’t think the stock price by itself has any impact on DC. But the problems that the low stock price implies might. I have no information this is being considered, but Quik could consider selling DC to help it with its financial issues. It could also mean that Quik doesn’t allow DC to spend all the money it wants to spend on product development, marketing, etc.
J.

hmmm... November 24th, 2008 - 12:28 pm

But they hiring people like mad.

Chris November 24th, 2008 - 7:18 am

Hi Jeff,
I really enjoy the information you have provided so far in your articles.

I am curious if you feel that the “surf boom” might be moving towards a bust. It seems that the general economic situation is a factor in the reduced stock prices etc, but I believe that primarily the surf fashion business has just run it’s course for this cycle. I am surprised (but not much) that nobody has come out to discuss the oversaturation of surf fashion, and the cyclical nature of the business as the bigger reasons for the decline.

Jeff Harbaugh November 24th, 2008 - 9:43 am

Chris,

The business cycle certainly exists- for surf and for every industry. In this case, I think the decline in consumer spending we’re experiencing will be the more important of the two factors in the near term.

Now, as an industry, we can sit here and talk about the cycle and being oversaturated etc. I don’t know if that is or is not a problem, but I do know that “the industry” isn’t going to fix it. What each of us has to do, as a business person, is figure out how to run our business better under the conditions that exist and are evolving. That’s called competing.

Microsoft can only sell so many copies of Vista and Word. Its growth depends on the sale of computers and other factors. If it wants to grow faster than that allows,they have to do things like move into the related area of games- the Xbox.

Surf is not different (nor is any other industry). If you have as big a market share in a market that isn’t growing that quickly (Burton in snowboarding I’d say is a good example) then you can either accept slow growth, try and take market share, make acquisitions, or extend your brand franchise.

Extending your brand franchise can take the form of expanding your distribution, starting new brands, moving into related product areas, or opening stores. It may require that you sell the company to a bigger player so you have the resources to compete. We’ve seen some of that going on and I expect we’ll see more.

The key for a manager is figuring out how to extend your brand franchise without damaging its credibility with its key constitutents. Easy to say, not quite so easy to do well.

This is true no matter what the industry conditions are or are becoming.

Colin November 24th, 2008 - 7:34 am

Just read the entire article on Quiksilver … many of my questions were answered. Still curious how DC’s entry into multiple different disciplines (Rally Cars, FMX, ect. ) could impact the ‘coreness’ of the brand overall. Their quick entry and subsequent domination of Rally events is impressive. I remember reading about how the DC/Subaru gear is selling really well. How does this correlate back to Quik?

Jeff Harbaugh November 24th, 2008 - 9:54 am

Colin,
Check out my answer to the question above. It’s related to what you’re asking. A brand that continues to grow will someday, somehow not be as core as a small brand that sells mostly to industry participants. That is neither good nor bad. You don’t necessarily have to be “core” to succeed. You may use the core market as a springboard to credibility with a new, much larger group of customers with whom you become credible even if you aren’t quite so core any more.

The skate shoe business has transitioned way past selling skate shoes to selling comfortable casual shoes that hordes of non skaters want to wear. Are those businesses not quite so core? Maybe, but that’s okay if they made that business decision on purpose and it’s working for them.

I can certainly imagine that DC’s growth into other disciplines (or Quik’s or any other brand’s for that matter) can make them less attractive to the core market. But if you want to grow faster than the core market allows and the non core market is 100 or 1,000 times the size of the core market, then the questions isn’t if you do it, but how you manage it.
J.

lance November 24th, 2008 - 9:45 am

Hi there like your blog
question as a retailer i have small about of stock sitting here after 45 days on the floor what should i do to get rid of it besides dropping it to cost is it okay to sell below cost to push it out the store as its wasting capital
Lance
ps one thing I well say about core shops is that people will still
by boots gloves and wetsuits in tuff times if there is waves
well for now

Jeff Harbaugh November 24th, 2008 - 10:06 am

Lance,
Your comment about people buying if there are waves is exactly right. It’s not surprise to learn the snowboard people are hoping it dumps. I think the businesses who have positioned themselves to have the commited participants as customers are likely to do better than some others.

Okay- inventory that’s not moving. Get rid of it. Every business is different but in this economy my general comment is to manage by your balance sheet- not your income statement. Making an accounting profit is a nice thing and necessary in the longer term, but right now cash is what matters. The changes in your balance sheet are the measure of your cash flow.

I have never, ever, ever seen old inventory become worth more. Have you? Okay, there was that old snowboard that’s now a classic, but you probably aren’t prepared to wait 15 years.

Sell it for whatever you can get for it. I don’t care if it’s below cost. See if your supplier can help you out. Sell it on Ebay so you don’t make your shop look bad. Use it in promotions or contests instead of spending other dollars on them. Hell, if you’ve got no other choice donate it and take a tax deduction if you’re profitable.

Love to hear what you decide to do.
J.

Roberto November 24th, 2008 - 10:10 am

Hey Jeff,

I have a two-part question.

The ability for businesses to obtain credit and financing is obviously a major factor in the current market. What strategy would you suggest manufacturers take in dealing with retailers on credit hold? Do they continue to ship them in hopes they’ll be able to move the product and risk going into debt themselves or do they continue the “credit hold” process and hope retailers can figure it out on their own? Should the large, lynchpin chain retailers be “bailed out” by the industry?

Secondly, do you believe most of the businesses in our industry including retailers built into their business model a strategy to deal with a “credit crisis” like the one we’re in? In other words, with no credit how many consecutives quarters in the negative can retailers handle without going under? How many for medium to large manufacturers?

Jeff Harbaugh November 24th, 2008 - 10:56 am

Roberto,
I hated managing credit. It just sucks. First, make sure you separate the credit collection function from the sales and marketing functions. Those guys should always be in a position to blame the credit department so they don’t jeopardize their relationships with the accounts.

Second, I assume that by definition if a retailer is on credit hold, nobody is shipping them anything, unless it’s cash in advance, COD, or credit card. And sometimes I don’t even like COD because the check can still bounce.

Every account is different. That’s why ctedit departments are in business. At the risk of oversimplifying, let me put it this way; If you don’t think you’ll get paid, you don’t ship. Other factors: How many dollars are we talking about? Has the retailer been honest with you about their circumstances and how they are going to manage them? Is the problem with your product, or with the retailer?

Maybe you can send them new stuff for cash and agree that they’ll pay a bit of the back bill with each new shipment. Can you legitimately take back part of what they can’t sell and place it someplace else without it costing you an arm and a leg?

Back in the mid 90s, when many, many snowboard brands were fighting for market share because they thought, “If we don’t get market share now, we’ll never be a player!!!!” Nitro Snowboards made a revolutionary decision- they decided to only sell to people who could pay them. That was pretty weird in the market environment at the time. It cost them a lot of US sales. People criticized them for being short sited.

Of course, 12 or so years later, Nitro is still around and doing fine where a lot of those other brands aren’t. Did Nitro lose some sales? Yup. Would you rather be Nitro or the brands who made those sales that Nitro lost but aren’t around any more?

Do not ship based on “hope.”

As to your second question, the issue of credit is different for each business. Damn, I’m saying that a lot.

Basically, I’d say that nobody has built this kind of credit crisis into their business models, because nobody even imagined it would happen. How long you can survive without credit depends completely on your balance sheet and cash flow. For an upcoming issue of Transworld Business I’ve already written an article on dealing with your bank or other financial source. Essentially, I say don’t surprise your banker, communicate with them like mad (bad news and good), make it easy for them to do their job, and have a good enough relationship so that you don’t get blindsided if they want to reduce your credit line.

With regards to credit from suppliers, if you already weren’t paying your bills, you’ve got a problem. If you’ve been a good customer, I imagine you’ll still get credit, but potentially less. As you may have cut back on your orders, that would work out fine.

I suspect damn few retailers could go for long if they had to pay cash for product shipments. If you do get approached to do that, ask for a bigger discount. It might help some. Cash is king these days.

RevOlution November 24th, 2008 - 11:24 am

Jeff,

Do you think now is a good time for companies to look at getting into different product mixes so that they don’t have all their eggs in one basket?
Thanks,
Ryan

Jeff Harbaugh November 24th, 2008 - 11:42 am

Ryan,
Like I’m starting to think I’m going to say on every question posted here, “It depends.” There, isn’t that useful?

I think it’s always a good time to do that, if you do it right. This may be an especially good time for a company to look into new products, because others may be reluctant to do it. If you are:

-You need to have the balance sheet to support it.
-You need a firm understanding of specifically who your customers are and why they buy from you.
- Do enough research to know there’s a market.
- Make sure the new product is consistent with your positioning in the market. Remember when Reef went into skate shoes in the US and everybody scratched their head and said, “Huh?”
- Assume it’s going to be harder to do, take longer, and cost more than you thought. It always does.

“Having all your eggs in one basket,” by the way,can be a good thing or a bad thing.

Hope that helps.
J.

Pistol Pete November 24th, 2008 - 12:37 pm

I own two medium sized shops in California and have always tried to play it smart with income and savings for down times. I have always run our shop on cash and have kept things tight for when times were tight. Kind of like a slush fund. Watching the housing market rise so strong in Socal- my wife and I were certain the fall off would be pretty bad and the landing quite hard so we peeled off a ton to help us get through the harder times though there were many times where we thought about pulling money out and opening a 3rd store.

For us it has been about keeping our orders a bit wider and less deep. In other words, For clothing we will do 1-1-1 or maybe 1-2-2-1 even in styles where we may have gone 2-4-4-2 and that has allowed us to bring in more styles.

Everyone has to do there part here and companies that are willing to help out with extended terms and some discounting has been great. What I don’t like is when these big guys try and exert pressure to get the deal done. One rep from a mid sized company told me could give us some better terms but we had to up our allocation to the brand. Huh? Where’s the upside there?

The late season warmth has been a bit of a strain on our Snow gear and we could really use some help there from the big guys.

We are keeping everything pretty tight so we can make sure that we are in good credit standing and get our orders shipped, but to the last person’s point- if it is sitting, blow it out the door and get some dollars cooking. Know your books is all I can say. Understand where you can squeak stuff out under cost and what will pay for that. Income is income- Even if you RTV the gear you might get your buy money back but if you could have sold some or most of the gear then that is top line revenue to your program. What econs refer to as opportunity loss.

I really am stoked to see some new brands coming up in this market as well. Some of these newer brands are really hitting good points on both hardgoods and softgoods. Forest skateboards seems to be doing some things right and has been a great addition to our program.

I had the owner and rep come in from one of these smaller brands and really dig into what I was about before any discussion of selling me anything. The owner actually had a plan about how or why his brand might (and even might not) work in one store vs. another as opposed to “our brand is so sick and fresh…we’re killing it everywhere..” I’m over that story…have been for years.

The big guys just don’t talk to us any more in that way. Sure, we’re all super friendly but it is all biz at this point. Here’s the stuff, Here’s the price, Here’s the delivery dates..

I hope that there is some contraction in the market and that will make room for some new players and tighten up the bigger guys. Volcom, Kr3w, and RVCA are doing good, Analog is struggling here though I’m not sure why as the stuff is killer but it seems to sit.

We are also getting some good traction with some of the smaller brands like Fyasko, Cardboard Robot, and Factor54 seem to really be clicking with our buyers. I’m always pensive about new brands but my wife (CFO) feels like we always need to give some of the brands that have a real vibe a chance. Damn it-she’s right again. TO me the success or ability for a new brand to succeed in our store is to merch it properly.

If a brand has more of a skate/dark vibe then we wold merch it with the skate brands and if it has a more surfy vibe then….Obvious to me but I ponder when some retailers but big/small brands on some circular and expect it to sell and then tell a company “your shit didn’t do so good so we’re not going to carry it anymore”.

For Spring we are playing it tight rather than pre-booking a ton of stuff. Wait and see- If we have to A/O most of our stuff than so be it. Hardgoods will be closer to normal buying then softgoods will. I will likely cut from my Boardshort which is a big strain on buying $$ but it moves so that is one that is up for consideration.

Also- Denim, really pulling back there.

Great thread going here. Jeff and the folks that are chiming in really seem to be showing that despite the bro/bra nature of this business there are some smart folks out there.

Jeff Harbaugh November 24th, 2008 - 2:49 pm

Pete,
Wow, great points. Next time Transworld wants to do this, you can answer the questions!

Have a good accounting system. Yes. If you don’t know your numbers, you’re screwed.

Be cautious and thoughtful on your ordering and get rid of stuff that doesn’t sell right away. Yes.

Don’t be bullied by a brand that’s not in touch with reality into buying stuff that you can’t afford or that’s wrong for your shop no matter how good the terms and big the discount. For sure.

New brands are important? More every day. They may feel like a risk but they are really your best chance to differentiate yourself.

It is encouraging to see this level of discussion isn’t it? The thing I always worry about though is that it tends to be the ones who are doing most of the right things who participate.

Thanks!
J.

Jeff November 24th, 2008 - 12:54 pm

Jeff,

I think this is a great idea and you should do it once a month or something. I have a few quick questions.
1) In a response above you mention “sell on Ebay” to a retailer to get rid of under performing products. With the fact that there are 500,000 new skis and snowboards sold on Ebay last year do you think these sales damage the brands whose items are being sold on Ebay as well as the brick and mortar dealers themselves? Most brands do not allow these sales in their online sales agreements so is it worth it for a dealer. Does it damage a brand image to have hundreds of new products on Ebay at major discounts?
2) Who do you think should take the lead in e-commerce in the industry? Brands? Large Retailers? Core Shops? Ebay?

Thanks!

Jeff Harbaugh November 24th, 2008 - 3:13 pm

Jeff,
Curious- where did you get the 500,000 skis and snowboards sold on Ebay number? I know it’s a big and growing number, but that sounds awful high.

In this market, if you’re a shop or a brand with too much inventory and tight cash flow, you do what you need to do and worry about the fallout later. Because you want to be here as a business to worry about it.

Do Ebay sales damage a brand? Depends how much they sell, at what price, and how the brand is positioned. I assume all the brands who have actively gone on line haven’t done it because they think it’s a bad idea.

If a brand sells direct through the internet and has a higher gross margin on every board it sells it’s financially better off even if it sells the same number of boards. That’s just an equation. I think the brand can be damaged if such actions causes it to lose suppose from key retailers. Does the damage exceed the benefit? Depends on the brand.

I’ve said before that a brand probably can identify somewhere between 50 and 200 shops in the US it just has to be in, and it should work with those shops to be certain they are happy and that the brand has a position in those shops. If you can keep that foundation solid,I think you can have a lot of options with your distribution.

Having said that, I don’t think there’s any way that a brand can claim to be helping its retailers by selling on line. Especially when the market isn’t growing. If you’re spreading the same amount of sales over more distribution, somebody is selling less.

I should also point out that everybody- brands, retailers, you, me, have some responsibility for creating a commodity product that can be sold easily on the internet. I don’t think there are any really badly made skis or snowboards out there any more like there use to be. You don’t need to be quite so cautious what to buy, it’s easy to find, and that brings prices down. This is the natural flow of competition, and I’d ask you to remember the benefit to the average snowboarder who can get a good snowboard for $200 instead of $500.

With regards to your second question, you make it sound like somebody is going to step up and take control and the others are going to agree to let them do that. Remember who’s in charge here; buying on the internet is an option that the consumer is demanding and is going to get. All we can do is try and meet their needs and requirments and manage the impact on our business.

Thanks,
J.

Jeff November 26th, 2008 - 1:38 pm

Jeff- I finally got back to this and saw your question. The 500,000 new snowboard and skis number comes from the 2007 SIA Retail Audit where they (the SIA) got the numbers directly from Ebay. It was a shock to everyone. Thanks for your responses and for taking the time to do this.

Warren November 24th, 2008 - 2:26 pm

Hi Jeff
Thanks for all the great words that you have put down, both past and present.

I am a retailer in Canada - and while we are not so directly tied to the US “crisis” (I hate to use that word) what do you think the world wide out look is for the action sports industry?

Also - do you think that the media shares much of the blame for the recent down turn?
Personally I feel that if the public is fed “doom and gloom” over and over, soon they will believe it.

Thanks

Jeff Harbaugh November 24th, 2008 - 3:25 pm

Warren,
Well, I suppose if all the snow melts from global warming and the water is too polluted to surf in, we’ll all be skateboarding. There’s bound to be enough asphalt and concrete.

I think people will always be surfing, skating, and snowboarding. Or some new activities with the same ethos will come along. Sorry for such a general answer, but it’s a pretty general question.

I think the media tends to accentuate the negative, but that’s because it’s what gets people’s attention. But blame them? No. There’s a psychological aspect to all downturns, just like there was one to the run up in internet stocks in the late 90s. But this down turn and the deleveraging we’re going through is as real as it gets.
J.

MR November 24th, 2008 - 2:47 pm

Warren,

I think your right to a point. The market bobs and weaves with media news especially lately. Take today for example with Obama’s quick Q and A and we have a 400 point uptick on the dow? Or his appointment of Guentner for Treasury Chief on Friday for a one hour uptick of 400 points. If you look at P/E’s over time vs. right now and it makes this market look attractive. Home prices should hit a bottom sometime next year. If Obama pushes his tax increases for 2 years and changes the mark to market accounting rule we could have a huge uptick in the market.

That being said I look at the middle class as the economic engine and they have taken a hit in job losses and equity losses in their homes but they also have a forthcoming second stimulus, and a huge tax cut from a drop in gas prices from 4 dollars a gallon to 2. I think we have some fundamental issues with credit, housing but most of all is that consumer confidence is at a low point and this in my opinion has a lot to do with the doom and gloom of the media and all the crowdsourcing conversations out there.

Lets get out there and shop. Quiksilver of Volcom preferably.

Can anyone explain the 40% increase in Quik stock? Was it the 40% off on their web store over the weekend which helped gross margin by 10%? HA HA.

Thanks to Jeff for this forum and to all that have contributed.

Jeff Harbaugh November 24th, 2008 - 3:30 pm

MR- What I’d like to see is all these derivatives traded on a market where their values could be known every moment of every trading day. If we’d had that, I don’t think we’d be in the mess we’re in now.

Does anybody besides me remember Long Term Capital Management and how their problem got resolved in the late 90s?
Thanks,
J.

ROCCO November 24th, 2008 - 3:38 pm

Jeff,

Do you think it’s a good time to start pushing online sales or is this channel getting saturated in action sports?
Thanks

Jeff Harbaugh November 24th, 2008 - 3:53 pm

Rocco,
Hey, help me out here with some specifics so I can give you answer that’s not so general as to be useless. When you say pushing online sales, do you mean selling online for the first time? What does saturated mean to you, how does that impact your product’s ability to be sold on line? Why are you thinking this is a good time for it?

Like I said this morning, I was afraid I’d end up saying, “It depends.” too much.

ROCCO November 24th, 2008 - 4:33 pm

Jeff,

Our in store sales are lagging and we don’t have an online store. We’ve been thinking about getting one going, but want to do it right. It seems like there are a lot of costs on the front end like hiring new folks, increased inventory (and all that that brings with getting more credit), and also a ton of other stores have beaten us to the punch.

tussinextreme November 26th, 2008 - 12:48 am

sure they beat you to the punch - so what? you have to start sometime. start now!

it doesn’t have to be much at first. but you have to do SOMETHING, like MR says. an address, hours, directions and a mission statement are essential. start there.

the traditional reply is to encourage you by saying, “hey, now you can learn from all the other guys mistakes” but the truth is, unless you were in their offices, and listening to them wrangle over this new-fangled innernet, you really can’t learn from them. so, look at what they’re doing, and try to get inspired by it. get some direction, develop a VISION (remember when you first started this?) and take your first steps.

and as for hiring new folks- well, good freaking luck. look for the 10% that are NOT anti-social computer freaks. still can’t figger those guys out.

Jeff Harbaugh November 24th, 2008 - 5:14 pm

Rocco,
Do you have an online presence at all? A web site that you use for promotional purposes and to communicate with customers?

If so, my understanding is that adding a store to that is not too big an undertaking.

How much more inventory you’d need depends on how successful the site is. May you have the problem of running out of inventory because you sell to much. Do you see the an online store as a supplement that supports your store, or a separate business?

Don’t think about “other stores beating you to the punch.” The question is does it make sense for you. I think every store needs to have a web presence at this point, even if they don’t use it to sell. The least you can do with it, I think, is offer some specials to regular customers and maybe use it cautiously to move some slow inventory.
Hope that’s helpful.
J.

MR November 24th, 2008 - 8:29 pm

Jeff,

The problems with the mortgage backed securities/deriviatives is that there were Credit Default Swaps to back them up, essentially insurance. If their wasn’t this type of insurance that created an artificial arbitrage then I don’t think as many companies, hedge funds, investment banks etc would have taken the risk of subprime loans. But when you have insurance, AAA rating, and a possible huge economic profit it was like taking candy from babies.

Rocco- you definately should do an online site and the upfront costs would not be as much as you think. At first you should use your store to fufill the orders and at the beginning you could have your current staff handle it. Pick it from the store, ship it with software provided by UPS or FedEx for free, and it will be a great new platform for you to have another profit center. One thing I would try and do is have a real time inventory management system integrated into your POS and website so your online consumers know when something is not in stock. This will also help with your inventory management. This is how most of the ecommerce stores have started such as HSS, Jacks ect. Then once you grow you can make it autonomous or if you have a system like retail pro it could be seen as another store.

Good luck and really focus on your SEO and google ad word marketing.

fitzy November 24th, 2008 - 10:30 pm

MR, you just blew the door off of Rocco’s store.

MR November 24th, 2008 - 8:33 pm

Rocco,

Check this site out that trys to pull relevant articles into one platform to help specialty retailers within the action sports market. therookery.ning.com

Enjoy

URBAN SWINGERS CLOTHING November 24th, 2008 - 8:47 pm

Hi Jeff,

First of all, thanks for sharing your knowledge with us. It is great to see that there are some competent people in the action sports industry.

We recently started a clothing company and we wonder if the current economic situation could be beneficial or not in terms of finding overseas vendors that could offer us quality products at low minimums. For a start-up company like ours, quality is the key, but the current economy does not allow us to purchase the massive volumes some overseas vendors require (and those USA vendors willing to sell us lower quantities have prices that are too high). Any suggestions on where to go these days?

Thank you.

Jeff Harbaugh November 25th, 2008 - 8:33 am

This is a typical problem for startup apparel companies. It’s too expensive to make it here, but you don’t have the volume for overseas. But I would point out that while the quoted per piece cost may be way cheaper in China for example, the costs of finding the supplier and getting going (travel etc.) can be a pretty big percentage of the total cost when your numbers are small. Your apparel has to right and on time the first time when you’re starting a business. Retailers won’t give you a second chance- especially right now. So you may just have to suck up the higher cost and lose a little money until you grow. That’s hardly an unusual scenario for a new company. Build it into your cash flow.

Mike November 24th, 2008 - 9:21 pm

Hey Jeff,

I am an aspiring entrepreneur from the midwest. I have a vision for a company I want to start hopefully within the next 5 years. I have begun making proto-type products and developing a business plan (slowly as I am a full-time student). That said what is the outlook for someone like me looking take my fledgling idea to a sustainable business over the next 5-10 years? More specifically what do you suggest for someone looking to attract angel investors in this time of financial crisis or for that matter in any type of market?

Jeff Harbaugh November 25th, 2008 - 8:34 am

You sent me an email and I answered it this morning before I saw this. Hope yo don’t mind if I don’t answer it twice.
J.

clive November 25th, 2008 - 7:05 am

hi jeff

excellent info.

After a monday like this you are going to need to rest up till next monday.

clive

Jeff Harbaugh November 25th, 2008 - 8:35 am

Clive,
It was kind of fun, and I learned some stuff. I’ll have to do it again.
thanks,
J.

Lance Moore November 25th, 2008 - 3:35 pm

Hi Jeff
you gave me some advice about how to get rid of old stock by says
sell it for what every you can get well , well here is what happen
-I don’t like selling things below cost but it was paid for.so say
I read you post this morning went to work and dropped the discount
to 9.99 and item and it really worked people actually bought allot of regular price items , I knew they answer but needed you to tell
me .thanks and my staff is happy to have it gone , we put it on line
on our dfc news blog but nothing beats person walking in store
thanks for help
I will tell you what sells faster in store on online

Lance
dacanesurfshop.com
all the best

Jeff Harbaugh November 25th, 2008 - 5:34 pm

I don’t like selling stuff below cost either, but sometimes that’s just the way it is. Every retailer (and brand) from time to time has stuff that just doesn’t work. I had sort of forgotten about the part where putting stuff on sale ends up helping you sell other stuff, but I’ve heard that before.

Anyway, I hope it wasn’t a lot of dollars and you don’t have the problem often.
J.

robbie November 30th, 2008 - 8:34 pm

Nice work Jeff
on a strange note things are looking up in China its more a case of “what recession?”
best Robbie

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