Retail Consulting
Exiting A Retail Business
Feb/12/2009 16:43 Filed in: Store Closing
Sale
Retiring
from a Retail Business:
Store Closing Sale or Sell?
What should you do when it comes time to retire from a retail business? Coopers and Lybrand, an international professional services company conducted a study of the retail industry to explore how retail stores are sold. It surveyed respondents operating approximately 12,000 stores and looked at a variety of means employed to sell the inventory and assets of retail stores, including the
following four primary methods:
1. Going Concern Sale – A store is sold to a purchaser who intends to continue operating it as a business and is willing to pay for some “goodwill” over and above the value of the assets.
2. Bulk Sale – Inventory is sold in lots to a business owner for resale.
3. Auction Sale – Inventory and other assets (furniture, fixtures and equipment) are organized in lots and sold at auction.
4. Store Closing Sale – Inventory and assets are liquidated in a going-out- of-business sale.
Methods #1 and #4 are the most popular.
Retail businesses with large inventories sometimes have a higher asset value than an appraised value based on the store’s cash flow (the money that remains after all the operating expenses are paid but before the owner draws a salary or pays any debt service). This is especially true where the owner has been pumping profits back into the business to build up the inventory.
Suppose a retail store had inventory of $200,000 but a cash flow of only $25,000. Over their five-year ownership period, the proprietors had taken little salary, choosing instead to plow most of the profits back into inventory.
Unfortunately, even if the sellers could realize the value of the inventory in a going concern sale, the $25,000 provable cash flow is insufficient to retire that
much debt and still pay the buyer a salary. In situations like this, it is often a strategic alternative to sell off the assets through an orderly liquidation (store closing sale). In many such cases, a retailer will purchase additional inventory to showcase during the liquidation process. The words, “Liquidation Sale –
Everything Must Go,” are great attention-getters and will drive traffic to a store when all other “motivators” fail.
In a going concern sale, inventory is valued “at cost” (what the seller paid for the inventory).However, in a store closing sale, an owner often offers discounts of 20 percent to 30 percent at the beginning of the sale. If a piece of inventory cost the seller $50 and was priced to sell at $100 (a typical keystone markup), a 30 percent discount would equate to a $70 selling price…$20 more than the owner would have realized on that item if it were included in the price of the business as a going concern. Even at a 50 percent discount, the owner will recover all the money that has been diverted to inventory.
Other advantages of a store closing sale include:
1) A predictable store closing date; and
2) All sales are in cash and credit cards with no accounts receivable.
Solutions For Retailers helps retailers plan and execute store closing sales (for a fee, of course) to maximize the owner’s return. We analyze the best timing for a store closing sale, anticipate the return, contact media reps, train employees, price the merchandise and survey the competition.
If a business generates sufficient cash flow to substantiate a “goodwill” figure over and above the wholesale value of the inventory and other assets, an owner should consider a going concern sale. Two obvious advantages of this type of transaction are:
1)The business continues in operation, which often has an emotional value that is priceless to the entrepreneur who started it.
2) The employees retain their jobs, which is often a major concern to an owner with loyal, long-term employees.
Another factor impacting the decision may be the presence of an existing lease. If the business owner is the personal guarantor on a lease with five years left,
he/she will either have to make arrangements with the landlord to retire that obligation early, or sell the business as a going concern with the buyer taking over the remaining lease obligation.
Store Closing Sale or Sell?
What should you do when it comes time to retire from a retail business? Coopers and Lybrand, an international professional services company conducted a study of the retail industry to explore how retail stores are sold. It surveyed respondents operating approximately 12,000 stores and looked at a variety of means employed to sell the inventory and assets of retail stores, including the
following four primary methods:
1. Going Concern Sale – A store is sold to a purchaser who intends to continue operating it as a business and is willing to pay for some “goodwill” over and above the value of the assets.
2. Bulk Sale – Inventory is sold in lots to a business owner for resale.
3. Auction Sale – Inventory and other assets (furniture, fixtures and equipment) are organized in lots and sold at auction.
4. Store Closing Sale – Inventory and assets are liquidated in a going-out- of-business sale.
Methods #1 and #4 are the most popular.
Retail businesses with large inventories sometimes have a higher asset value than an appraised value based on the store’s cash flow (the money that remains after all the operating expenses are paid but before the owner draws a salary or pays any debt service). This is especially true where the owner has been pumping profits back into the business to build up the inventory.
Suppose a retail store had inventory of $200,000 but a cash flow of only $25,000. Over their five-year ownership period, the proprietors had taken little salary, choosing instead to plow most of the profits back into inventory.
Unfortunately, even if the sellers could realize the value of the inventory in a going concern sale, the $25,000 provable cash flow is insufficient to retire that
much debt and still pay the buyer a salary. In situations like this, it is often a strategic alternative to sell off the assets through an orderly liquidation (store closing sale). In many such cases, a retailer will purchase additional inventory to showcase during the liquidation process. The words, “Liquidation Sale –
Everything Must Go,” are great attention-getters and will drive traffic to a store when all other “motivators” fail.
In a going concern sale, inventory is valued “at cost” (what the seller paid for the inventory).However, in a store closing sale, an owner often offers discounts of 20 percent to 30 percent at the beginning of the sale. If a piece of inventory cost the seller $50 and was priced to sell at $100 (a typical keystone markup), a 30 percent discount would equate to a $70 selling price…$20 more than the owner would have realized on that item if it were included in the price of the business as a going concern. Even at a 50 percent discount, the owner will recover all the money that has been diverted to inventory.
Other advantages of a store closing sale include:
1) A predictable store closing date; and
2) All sales are in cash and credit cards with no accounts receivable.
Solutions For Retailers helps retailers plan and execute store closing sales (for a fee, of course) to maximize the owner’s return. We analyze the best timing for a store closing sale, anticipate the return, contact media reps, train employees, price the merchandise and survey the competition.
If a business generates sufficient cash flow to substantiate a “goodwill” figure over and above the wholesale value of the inventory and other assets, an owner should consider a going concern sale. Two obvious advantages of this type of transaction are:
1)The business continues in operation, which often has an emotional value that is priceless to the entrepreneur who started it.
2) The employees retain their jobs, which is often a major concern to an owner with loyal, long-term employees.
Another factor impacting the decision may be the presence of an existing lease. If the business owner is the personal guarantor on a lease with five years left,
he/she will either have to make arrangements with the landlord to retire that obligation early, or sell the business as a going concern with the buyer taking over the remaining lease obligation.
Why Hire A Retail Store Closing Consultant
Feb/04/2009 09:48 Filed in: Store Closing
Sale
Why Employ a Consultant?
Use of a retail store closing consultant will produce a maximum return at minimum expense, reducing potential losses from excessive markdowns, ineffective advertising, excessive expenses, or a loss of momentum.
A professional retail consultant analyzes the client’s situation, tailors the plan to the individual retail client and helps manage the implementation to include merchandising, store operations and sales to produce the best results.
The consultant brings three essential elements to the client - proven marketing tools, experience and management expertise.
The consultant will implement a marketing plan, tailored to the specific characteristics of the retail client. The marketing plan is designed to produce heavy traffic flow and sales volume. The plan will normally address the following issues:
1. Timing
2. Preparation
3. Merchandising
4. Pricing
5. Advertising
6. Point-of-Purchase Promotion
7. Employee Training
8. Security
9. Public Relations
Knowing when to expect peak traffic flow, how long volume can be sustained, when and how much to advertise, when to take a markdown, and other critical questions can only be answered from experience. A retail store closing consultant is a specialist. Experience allows accurate judgments, anticipation of problems, and the ability to implement the marketing plan for maximum results.
The intense environment of a store closing sale is much different than normal business. The consultant is available to solve problems, react to a changing situation and take advantage of every opportunity to enhance results.
Frequently, a client has been able to identify one or two of the decisions recommended solely by the consultant that paid all consulting fees within the first few days of a promotion.
Use of a retail store closing consultant will produce a maximum return at minimum expense, reducing potential losses from excessive markdowns, ineffective advertising, excessive expenses, or a loss of momentum.
A professional retail consultant analyzes the client’s situation, tailors the plan to the individual retail client and helps manage the implementation to include merchandising, store operations and sales to produce the best results.
The consultant brings three essential elements to the client - proven marketing tools, experience and management expertise.
The consultant will implement a marketing plan, tailored to the specific characteristics of the retail client. The marketing plan is designed to produce heavy traffic flow and sales volume. The plan will normally address the following issues:
1. Timing
2. Preparation
3. Merchandising
4. Pricing
5. Advertising
6. Point-of-Purchase Promotion
7. Employee Training
8. Security
9. Public Relations
Knowing when to expect peak traffic flow, how long volume can be sustained, when and how much to advertise, when to take a markdown, and other critical questions can only be answered from experience. A retail store closing consultant is a specialist. Experience allows accurate judgments, anticipation of problems, and the ability to implement the marketing plan for maximum results.
The intense environment of a store closing sale is much different than normal business. The consultant is available to solve problems, react to a changing situation and take advantage of every opportunity to enhance results.
Frequently, a client has been able to identify one or two of the decisions recommended solely by the consultant that paid all consulting fees within the first few days of a promotion.
Choosing The Right Consutant For A Store Closing
Jan/17/2009 12:56 Filed in: Marketing
for the Small Retailer
How to choose the right marketing consultant for
conducting a Store Closing Sale
A small guy needs help too
The recession is playing havoc with the retail industry. The International Council of Shopping Centers estimates that almost 150,000 stores closed their doors in 2008. Many of those were small retailers that tried to do it without any professional help. When large chains, with large staff like Mervyn’s, Sharper Image, Linen-n-Things, Whitehall Jewelers hire professional retail consulting organizations to run their store closing sale, you have to wonder why so many small retailers think they have the experience and knowledge to pull off the most important sale they will ever run.
There are quite a few very good retail consulting companies out there that help the small retailer maximize the results of his Store Closing Sale. But as with any group there are some questionable ones out there.
Here are some things to consider when choosing the right professional.
• Make sure that the consultant that you hire has experience marketing and managing a Store Closing Sale. Many of the larger consulting companies contract with former retail professionals who have a good retail background, but no experience conducting a Store Closing Sale. This type of sale is different.
• Be cautious of anyone that insists that a decision be made today. It’s OK to make a decision if you have done your due diligence and are comfortable with the plan. Do not be pressured into acting hastily.
• Who is going to be working with you to run your sale? Many times one guy sells you the program and another guy does the work. Be sure you have the opportunity to speak or visit with the consultant who will be working directly with you. That “sales” guy will be long gone after your sale starts.
• Can you cancel the agreement if they are not getting the results necessary? If not, don’t hire them.
• How is payment structured? If it is a flat fee, they get paid if they obtain results or not. The best scenario is a base fee (covers expenses) and percent of sales (based on performance). If they aren’t comfortable with that arrangement, they lack confidence in their ability to produce.
• You must be 100% comfortable with the consultant that you work with. You won’t always agree with him, but you must believe he has your best interest at heart.
A small guy needs help too
The recession is playing havoc with the retail industry. The International Council of Shopping Centers estimates that almost 150,000 stores closed their doors in 2008. Many of those were small retailers that tried to do it without any professional help. When large chains, with large staff like Mervyn’s, Sharper Image, Linen-n-Things, Whitehall Jewelers hire professional retail consulting organizations to run their store closing sale, you have to wonder why so many small retailers think they have the experience and knowledge to pull off the most important sale they will ever run.
There are quite a few very good retail consulting companies out there that help the small retailer maximize the results of his Store Closing Sale. But as with any group there are some questionable ones out there.
Here are some things to consider when choosing the right professional.
• Make sure that the consultant that you hire has experience marketing and managing a Store Closing Sale. Many of the larger consulting companies contract with former retail professionals who have a good retail background, but no experience conducting a Store Closing Sale. This type of sale is different.
• Be cautious of anyone that insists that a decision be made today. It’s OK to make a decision if you have done your due diligence and are comfortable with the plan. Do not be pressured into acting hastily.
• Who is going to be working with you to run your sale? Many times one guy sells you the program and another guy does the work. Be sure you have the opportunity to speak or visit with the consultant who will be working directly with you. That “sales” guy will be long gone after your sale starts.
• Can you cancel the agreement if they are not getting the results necessary? If not, don’t hire them.
• How is payment structured? If it is a flat fee, they get paid if they obtain results or not. The best scenario is a base fee (covers expenses) and percent of sales (based on performance). If they aren’t comfortable with that arrangement, they lack confidence in their ability to produce.
• You must be 100% comfortable with the consultant that you work with. You won’t always agree with him, but you must believe he has your best interest at heart.