Recession? You’re Kidding- Right? Please?

The NASDAQ stock market rocketed towards heaven for several years. Its decline has been equally spectacular. Four trillion dollars of value have been wiped out in a year. It’s matched its worst fall ever in percentage terms, but it’s done it in half the time. Should we be surprised? No. The statistical concept of “regression to the mean” is working like it always works. Things do tend to even out. What goes up must come down. If it sounds too good to be true, it usually is.

You get the idea. 
Now, after an unprecedented economic expansion, we’re facing, or we’re already in, a recession. Pundits are hoping for a soft landing. I’m hoping for one.
The skateboard market has taken off like the stock market or the economy of the 90s. Someday it will soften. A little? Or will we be facing regression to the mean? If (maybe when?) we are, what should skate retailers be doing?
The Word at the Retailer
The first thing I did was to call at random half a dozen skate shops in various parts of the country. I’d introduce myself and get the shop manager or owner on the phone. When I ask if the economic slowdown was having any impact on skateboarding sales, the responses ranged from a long pause to hysterical laughter in the background. I think I was lucky they didn’t want to offend anybody from Transworld.
Without exception, the response was some variation on, “What recession? You’re kidding, right?” One San Diego shop talked about sales being the same. Everybody else talked about them being up.
Carolyn Zuzworsky, the owner of CD Skate shop in New York, said it was “so crazy we’ve had to hire extra people.” NC Skate in North Carolina has been open three years. Manager Trey Womble indicates sales had grown every month. With a skate park opening two blocks away, he anticipates that will continue.
Tim and Stephanie Pogue, at Faction in Seattle, see nothing but strength in the skateboard market.
Reggae Destin at Push Skateboarding and Culture in Illinois told me there was a “surge of new little kids coming out of nowhere.” His only problem is the lousy Chicago weather. That would be a problem for me too.
Lots of happy, happy, joy, joy going around. Margins on decks are still lousy, but expensive shoes are flying out the door and a lot of kids somehow have money (nobody knows exactly where they get it) for new decks as often as every couple of weeks.
See paragraph one under “If it sounds too good to be true….” I am reminded that it was March of 2000 when a major brokerage house finally recommended internet stocks they had heretofore pronounced as too expensive. That was the top. Sort of like going to the last ASR show and seeing the Savier shoe brand.   
Still, things are great in the skateboard market at retail, and there are no clouds on the horizon. Everybody is making lots of money.
So stop reading. Obviously, there’s nothing to worry about. But if you don’t mind, I’m going to finish this article anyway. What I want to suggest is that there are some things you can do that are not only good for your business now, but will serve you well if someday, impossible as it seems now, things aren’t quite so good.
Don’t Kid Yourself
Everybody looks like a hero when cash flow is good. Customers are coming in without much marketing expense. Inventory is flying off the shelf. There’s less price sensitivity. Skate parks are popping up like mushrooms.
Made a couple of bad inventory choices lately? Got one more kid working on the floor than you probably really need? Haven’t bothered to update your web site regularly- or don’t have one? Haven’t bought new racks to replace those old beat up ones? What the hell- the lighting in the store is so bad nobody can see the racks anyway.
But it really doesn’t seem to matter. You’re a hero of retailing because the kids, with their parent’s money clutched firmly in their fists, keep coming in. Cash flow makes a few things you could be doing better seem unimportant. It covers up deficiencies.
But this is precisely the time when you should attack these issues – for three reasons.
First, right now you can afford to. There’s a little extra money in the till. Second, profitability will improve right now if you manage expenses like you would if times weren’t so good and good merchandising can increase your sales even further. Finally, and most importantly, you’ll be positioning yourself for when times aren’t so good. Let me explain.
Someday, (Next month? Next year? Next decade?) because skateboarding won’t be so hot, or because there will be less money floating around, or just because there are too many places to buy skateboards, customers will be harder to come by. They’ll still come of course, but not as often and they won’t spend as much. Why will they come to your store?
Maybe it will because you put in those new racks and improved the lighting. Or because you send them occasional emails on what’s new in the store. Perhaps you’re a habit for them- your shop has consistently offered them the merchandise they want and expect to see. You’re part of their lifestyle. Maybe they’ve got a personal relationship with you, or with one of the sales people (assuming you keep sales people long enough for a relationship to form).
However you did it, you’ve created an image of your shop in your core customer’s mind. There’s a more durable relationship there, and that relationship can survive when times aren’t so good. Your customer knows what you stand for and why they shop there. Make sure you’re building that relationship now.
Don’t Just Sell
Brands often get screwed up because they expand their distribution too far, too fast. Shops can get screwed up if they become willing to sell anything to anybody.
In both cases, the customer gets confused. He loses his motivation to buy that brand or go to that shop. Right now, you don’t even notice the impact. You’ve got a skateboarding feeding frenzy.
I’m not suggesting you shouldn’t be responsive to what the customer is asking for. I’m not saying its bad to grow sales. But growth of sales alone shouldn’t be your exclusive focus and only measure of success- because right now anybody can grow skateboarding sales.
Focus also on gross margin and select products and brands at least partly on the margin you can earn. Control expenses. Paying attention to just those two things will serve you well now and if the day comes when sales aren’t so easy to come by. 
Never lose sight of who your customers are and why they buy from you. Try writing that down and hanging it over your desk. Look at it every day. Make your purchasing decisions through that filter.   
If you find you can’t easily write that down, or if when you have written it you know in your heart of hearts it’s bullshit, or it’s three pages long, you have a problem.   
This will especially be an issue with new shops who have only known the good times and have never had to figure this out. If your shop has been in business more than a couple of years, you may have had the good fortune to have to succeed when skateboarding wasn’t going off. If so, this little exercise I’ve suggested shouldn’t be a big deal to you.
If anybody wants to email me their statements of whom their customers are and why they buy from you, I’d be glad to comment on them. If I get a bunch of them it might be the basis of an article for SkateBiz, though of course I wouldn’t identify the shops.
Good Business
The challenge, then, is to make hay while the sun shines (whatever that means exactly) but to do it in such a way that you’re ready for a cloudy day. It’s a bit of a balancing act. To some extent it goes against human nature because I’m suggesting that selling everything you can isn’t necessarily the right thing to do if you take the slightly longer view. Nor is it the only thing to focus on. I’m also asking you to recognize and react to your opportunities to do things better when there’s no pressure to do so. That’s the easiest time to do it. But I’ve learned that it’s also the time when any of us are least likely to do it. I never worry about marketing my consulting business when I’m busy with lots of consulting.
I think we’re about to enter a bit of an economic downturn. I don’t know how severe it will be, or how much skateboarding will be affected. The good news is that the things I’m suggesting you do to position yourself for it are good business in any economic environment.
What would your business look like if sales were down five to twenty percent, and margins were two percentage points lower? How would you react? What can you do to make sure it’s somebody else’s sales and margins that fall? Think about it now. Run your shop well now.