The 2% Solution

Average Store Scenario

A Look Back

Moving from –1.67% to 2% Three Strategies

Combining All Three Strategies

Increasing Sales Bring More Customers into the Store Develop a plan for advertising using co-op dollars Implement a public relations plan Build a customer database to Bring in new customers Bring back former customers Bring existing customers in more frequently Use your web site as a marketing tool Use as a marketing tool Do more in-store events Use out-of-store events to reach new customers Reach out to underserved markets and special interest groups Add amenities that build traffic (e.g., a cafe, a magazine/newspaper section Improve the stores visibility (signs, window displays, lighting) Form marketing alliances with other businesses Join Book Sense

Increasing Sales Sell More to Customers in the store Re-model the store to improve traffic flow and displays Improve merchandising Introduce a customer loyalty program - customers will spend more of their book dollars in your store and you will build a customer database with purchase data Bring in other merchandise (cards, gifts, etc.) for add on sales Sell more gift cards/gift certificates

Increasing Sales Sell more Outside the Store Do out-of-store events Incentivize Web Sales Sell to corporations and institutions

Increasing Margin Bring in higher margin merchandise (e.g., remainders, sidelines, used books) Move high margin merchandise to high traffic areas Give high margin merchandise more space Increase purchasing discounts Buy more direct from publishers Plan ordering to maximize discounts Order electronically to receive EDI discounts Take advantage of stock offers Take cash discounts from wholesalers

Reduce freight costs Plan buying to meet free freight minimums Use vendor of record programs to get free freight on books from smaller publishers Participate in ABAs freight program? Reduce inventory shrinkage Use security systems (cameras, security gates) Change store layout to deter theft Train staff in security procedures Take steps to reduce employee theft Prosecute thieves Promote & Sell more gift cards Increasing Margin

Increasing Margin

Reducing Payroll Costs Use payroll budgets Set a payroll budget for the whole company and for each department Set budgets as a percentage of sales Match schedules to payroll budgets Budget by the month or season

Reducing Payroll Costs Schedule efficiently Schedule according to store needs, not employee preferences Use a written schedule showing all staff so that you know exactly how many staff are available at all times Use overlapping shifts to cover peak hours and lunch breaks Use back office staff to cover peak hours and lunch breaks Replace 8 hour shifts with shorter shifts Judicious use of part-time staff Cross training - No specialists Design a user friendly physical layout Outsource specialized functions Adjust store hours during slow seasons

Reducing Payroll Costs Control pay rates and raises Set pay scales for different positions, with a pay cap for each position (no more raises once someone reaches the cap) Make sure that raises fit within the budget Tie raises to increased responsibility or cuts in overall staffing Replace raises with profit sharing

Reducing Payroll Costs Control overtime Insist that all overtime be pre-approved Put managerial staff on salary Schedule full-time employees for less than 40 hours a week Use more part-time staff Use on call staff to cover employee absences and special events

Reducing Payroll Costs Make your staff more productive Use technology to improve productivity Streamline purchasing, receiving, returns and accounting systems Cut out unnecessary or duplicative procedures Limit sales calls from reps Training is the key

Reducing Occupancy Expense Renegotiating your Lease Know that rent is going to be a problem before it becomes a problem Project sales for the coming year based on current trends and known future changes (e.g., a superstore opening) Know how much rent you are supposed to pay in the coming year (check your lease for scheduled rent escalations) Calculate how much rent will be as a percentage of projected sales. Remember to include additions to rent such as common area maintenance (CAM) charges Know how much rent you can afford to pay (make a projected P&L for the coming year) Refer to Industry Standards ( ABACUS)

Reducing Occupancy Expense Renegotiating your Lease Calculate exactly how much of a rent reduction you will need Remember to check your lease for scheduled rent escalations – you dont want to be going back to ask for another reduction in a few months time Give your landlord plenty of notice that you will need a reduction Property owners tend to plan their finances well ahead and dont like surprises It can take a long time for a property manager to get approval from owners Giving notice shows that you are a responsible tenant

Reducing Occupancy Expense Renegotiating your Lease Do your homework Find out the market rate for your space Ask real estate brokers what comparable spaces are renting for Ask neighboring tenants what they are paying Find out if your landlord has given rent concessions to other tenants Ask neighboring tenants and real estate brokers Collect articles/studies on the retail environment in your area

Reducing Occupancy Expense Renegotiating your Lease Make your case If sales are down, explain why Focus on causes that are outside your control (e.g., a superstore opening) Focus on causes that are within the landlords control (e.g., you are in a mall that has gone downhill) Explain what you are doing to help yourself (e.g., bringing in new merchandise, advertising more, cutting expenses) Show how much rent you can afford to pay Use industry studies such as ABACUS to show how much rent bookstores pay Use a projected P&L to show that you need a rent reduction to stay in business Stress how responsible you are being in addressing the issue before it becomes a problem (Landlords live in fear of tenants who declare bankruptcy in order to renegotiate rent or get out of leases ) Mention the cost of finding a new tenant if your business fails (e.g., lost rent while the space is vacant, brokerage fees, build-out costs)

Reducing Occupancy Expense Renegotiating your Lease Be realistic Dont ask for an unrealistic rent reduction If your landlord wont reduce the scheduled rent, ask for a temporary abatement Know whether your problem is temporary or permanent

Reducing Occupancy Expense Renegotiating your Lease Offer something back Offer to pay percentage rent if sales are better than expected Offer to pay a higher percentage rent over a fixed break point Offer to back load rent if you think that business will improve Offer to give back some space if you have more than you need Offer to make improvements to your space