The economic roller coaster continues. The first quarter brought mixed results from retailers in different industries. The cost of credit continues to increase (with no end in sight). Consumer spending increased significantly in April and inflation accelerated. The Commerce Department said consumer spending increased 0.8 percent, up 0.1 percent from increases in both February and March. The president of the Cleveland Federal Bank said she thinks interest rates should keep rising until the next move is equally likely to be an increase as a decrease. “I don’t believe we are there yet,” she said earlier in May.

While consumer spending is increasing, the rise of interest rates and inflation is making consumers jittery and managing your business more difficult. Lowe’s reported inflation pressures were felt mostly for big ticket items. Spending on do-it-yourself project items was down significantly, according to CEO Marvin Ellis. Home Depot reported essentially the same thing. Costco’s CFO said the company’s average daily transaction amount fell in the first quarter, driven mostly by weaker sales of big ticket items such as electronics, jewelry and home furnishings.

On top of rising interest rates, the uncertainty of the federal debt limit negotiations weighed on the economy. All involved professed a default could be avoided. The administration held a position that a clean debt ceiling bill was what they wanted, and that there would be no negotiation. The House deliberated and passed a bill that raised the debt ceiling, but with conditions. With the clock ticking down, both sides compromised and an agreement was hammered out with a bipartisan vote to raise the debt ceiling. Neither side got everything it wanted, but the threat to the economy was removed, at least until the debate begins on next fiscal year’s budget.  

Tracking spending trends shows consumers are spending a larger share of their budgets on activities that get them out of the house. This isn’t surprising given the sequestration COVID caused. However, that spending has been selective.  Urban Outfitters latest quarter sales rose 17 percent at Free People, a sub-brand which caters in bohemian-chic fashion, and 13 percent at Anthropologie, another sub-brand. Those gains offset a 13 percent drop at the company’s namesake brand.  

Consumer spending trends also show a pent-up demand to get out and express yourself. The going-out trend is evident at Dick’s Sporting Goods. Dick’s reports sales of items sold for team sports stayed strong in the latest quarter.

How might this effect your business as a bicycle distributor and/or dealer? Certainly you will have an understanding of what is selling in your business; high end versus moderately priced product, complete bicycles or accessories to make what they already have perform better or full-priced product or just what is on sale.

Many of you are pressed not only with a lot of inventory, but pressure from your distributors to take more. We are on the cusp of what many hope will be a busy summer selling season, but as noted above there are significant economic headwinds. Things may be getting a little worse, too. Recent data from the Commerce Department shows consumers increased their spending sharply in April, 0.8 percent (kind of good news), but may force a continuing increase in interest rates (kind of bad news). The increase in consumer spending is “… just continuing to demonstrate the underlying resilience of the consumer … ” said Wells Fargo economist Shannon Seery, and may lead to further interest rate increases. However, it seems that underlying resilience has been and will continue to be selective.

As that summer season is rapidly approaching, you may wish to consider some unconventional business changes to help weather these unconventional economic times. Cash flow is critical to any company’s survival, and you should have a budget to help you navigate that, now more than ever. Is your revenue coming in as forecast and covering your costs? Is the business at least at break-even? If not, is it a revenue short-fall or are expenses higher than anticipated? Following are some questions you should be asking to make sure your business is in good shape.

A shortfall in revenue can be tough to correct, and you need to identify the reason. Is store traffic not as high as anticipated? Or, like Costco, has the average transaction fallen? If this is the case can you identify possible causes? Have you changed your marketing and/or advertising tactics? Should you? Has new competition sprung up in your area? Has mail order or direct-to-consumer sales had an effect? How you might respond to each of these depends on your individual circumstance and market demographics. Can you adjust marketing and advertising, or do you/can you offer direct to consumer sales? What might a new competitor offer that you don’t but should?

Is the shortfall across the board or from a specific part of the business such as new/used product sales, service or accessories? Is the mix of what’s sold/billed significantly different that budgeted? Even if the total amount of revenue is meeting budget, you still should understand where the dollars are being generated so you can address any possible lagging performance in one or more areas to take corrective actions before the lag becomes critical.

Sometimes it may be tempting to put product on sale to hopefully increase sales and get revenue back on track. That can also help to lower inventory and carrying costs, converting inventory to either cash or accounts receivable. The caveat is this needs to done carefully. As noted above, with consumers looking to rein in their spending and being selective, you don’t want to condition your customers to shop only when you have a sale. 

Your expenses may be on budget, but if revenue isn’t you still need to take action. On the expense side there are a number of things you can control. If there is a reduction of store traffic are your business hours appropriate? Maybe it’s possible to have a voicemail system to handle calls during off hours. Does your store have an effective web site? Is that web site able to log and report customer contact via e-mail? That capability would allow the customer to establish a connection with your business and allow you interact with the customer in close to real time. It may also allow your business to generate on-line sales. Of course that presumes someone would be available and responsible to answer and respond in a timely manner.

As hard as it may be to find qualified employees, you may have to ask if your staffing is appropriate. Would it make sense to offer temporary part time employment to some full time employees? Perhaps have one of the full time employees be responsible for the voicemail and e-mail?

These are some things to consider to make sure your business is one that survives and hopefully prospers. In coming editions I’ll look at the continuing economic issues and how they might impact your business.

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