Meeting the Challenge: A Letter to Booksellers From ABA CEO Avin Mark Domnitz on the Economy -- Plus Other Resources for Tough Times

Dear Booksellers,

With almost-daily reports forecasting a challenging holiday season for the nation's retailers, I know that many of you are focused on how to achieve the continued good health of your businesses. In the midst of these turbulent times, please know that ABA is here to help you.

We understand the challenges facing you. Hopefully, many of you will meet or exceed your goals, but, even if business falters, it's essential to try to remain proactive rather than reactive. Now is the time to look at your business carefully, to first identify trends, and, then, to find ways to enhance those that are positive and to soften those that are negative.

None of us has a crystal ball, and no one can predict exactly how the economic downturn will affect sales this fall. Now more than ever, it's important to hearken back to business fundamentals. A basic business tenet -- especially when credit is tight -- is that "Cash is King." The key to being in control of your business is to be in control of cash. Think in terms of cash even more than profitability.

With that in mind, immediately revisit your sales and inventory budgets. Look at how your actual sales over the last 60 days compare to last year's sales and to your budget for this year. Is there a trend? Because most of you will do about 40 percent of your business in the fourth quarter, it is essential to make sure that you are positioned to be able to make the business decisions necessary to maximize your holiday season, especially decisions regarding inventory purchases.

Remember the goal is to control cash. And to control cash means to control inventory and to control payroll.

The reason to focus on these two items is that they comprise the bulk of each dollar spent in the operation of your business. Inventory constitutes approximately 60 percent of each dollar spent and payroll constitutes approximately 20 percent. To take control of both payroll and inventory means you can control 80 percent of every dollar spent, which means you have a much better chance of controlling your business. Again, the point is to be proactive rather than reactive.

The first step is to go back 60 days and determine what sales were during that period and, then, compare them with the same time-period last year. Again, are there any trends? Are sales higher or lower? How do sales compare to your original budget for this year? If sales are five to 10 percent lower than last year, but you budgeted for that -- fine. But if you budgeted for a flat year or an increase in sales, you need to make a midcourse correction to keep control.

Inventory

Look at inventory. Was your inventory plan based on original sales projections that are now lower than expected? You might have more inventory than is justified by sales. There's nothing wrong with doing returns now. Returns are your ultimate control device. I'm not talking about a full-scale pillaging of your inventory. I am talking about adjustments to keep control of inventory levels. Remember, inventory is nothing more than cash in another form -- and we'd rather have cash in our pockets than in someone else's.

We may think we know what the hot books are going to be this season, but inevitably there are one or two (or 10!) titles that explode that we didn't plan for. You will need to get those books on a moment's notice. You don't want to be in a situation where you're over-inventoried and don't have cash on hand to buy those books. Also, it's important to keep in mind that in hard economic times publishers, like other businesses and banks, are more likely to tighten credit, even for good customers. Without ready cash, you may not be able to get the very books that could maximize your season.

Here's more great information on inventory management and marketing in tough times from Bookselling This Week.

Payroll

Over the course of the whole year, profitable bookshops operate with a total compensation percentage of about 18 to 20 percent of sales. At a time when sales are lower, the percentage will be higher. During the holiday season, the percentage of compensation expenses should then be lower. Take a look back at last year's payroll for the holiday season and compare it with sales. If sales are down 10 percent, then payroll should be trimmed. There is no one-size-fits-all solution here, but, again, the object is to staff the store at the level that maximizes sales. If sales are below budget, you must adjust controllable expenses. And here's more good information on staffing in tough times from Bookselling This Week.

In uncertain economic times, fundamentals of good business management apply more than ever. And to help provide the tools for determining trends and building a strategy on those trends, please look at the Budgeting and Monitoring Worksheets on BookWeb.org.

Again, I want to stress that we at ABA are here to help you. It can feel as if each day brings a new economic rumble or dip, but with proactive planning and analysis, you can put yourself in the best possible position to maximize the potential for this holiday season. Feel free to contact me, and let's work together to help achieve the best holiday season we can. To help with logistics, please contact ABA's Member Services Director, Jill Perlstein, at jill@bookweb.org, so that we can set up a time to talk.

Sincerely,

Avin Mark Domnitz
Chief Executive Officer
American Booksellers Association