THIS IS MY 117TH BLOG ON UNDERSTANDING MONEY
TOOLS
I have been analyzing one large national retail company. For
obvious reasons I cannot mention the name nor the industry but would like to
cover a few salient points that I believe are typical of large companies and
why they are failing. Once a
company is a publicly traded entity it is very important to have a good
financial public relations firm behind it. Propaganda machines!
Is what you hear and read in the news and reports the real deal? I doubt it.
I am going to leave financing out of this analysis as we
have discussed it many times before and how Governmental Accounting Practices
(GAP) has changed. With this
particular company I am finding a mess, and most likely very typical of old
companies that have grown through acquisitions of other companies.
Here is what we have:
- A
company that has expanded over the past 75 years in an industry that has been
relatively hot with solid profit margins of around 35%. They retail, but not
manufacture product, much company product from China. Now, the demographic market is aging, industry rapidly
changing, thus will product be in demand or growing in 10-15 years? I question it.
- The
company has thousands of US stores and inventory that is disorganized. Example: Corporate has printouts for each store and inventory,
however actual annual inventory is done manually by low paid employees without
the aid of scanners. How do you
really know the value of assets and inventory on hand? You don’t. Grocery stores are noted for being able to control inventory
count pretty well. Many times they
outsource this to private companies, and we have all seen these people in isles
along with laptop computers on carts and hand held scanners. Much better. Most retailers have to hire minimum wage people, many never
graduated from high school let alone went to college. Therefore, inventory needs to be controlled accurately and
in a simple manner.
- Employees.
This company I speak of has a high turnover of employees, not unusual for
minimum wage jobs. Make a
corporate rule that to educate the average employee it should not take more
than 2 days. Training, systems,
work and expectations need to be set to the lower degree for these
employees. Employees are like a
chain, no stronger than the weakest link. Management can have a different
standard and are paid more.
- Identification
of inventory. The company I refer
to, like many retailers, runs a back room inventory of 40-60% of total retail
space. Shipments normally come in
from a distribution or hub centers located close to major airports or rail
stations 1 to 3 times a day.
Inventory areas need to be well marked and easily assessable to
employees. The company I am
analyzing has nothing marked and could take the average employee months to
learn where product is stored, inefficient and with inefficiencies come costly
errors. Within each product area
items are assigned according to number, or worse, hand written identification
numbers. In the real world, do you think a minimum paid employee cares where
things go? No. Companies need to use signage for all
product spelled out and understandable for both the customer out front and the
employees in the back room. Access to back room inventory can go 10 feet high
on shelves. This company has no
easy access to higher items, therefore cumbersome ladders block the isles. Not all isles have these ladders so to
get a part on an isle with no ladder it takes several minutes to wheel a ladder
to another isle.
- Software
technology. According to a few
employees this company’s software is a nightmare; designed by idiots and
updated regularly not communicating the updates with store employees and
management. Again, in setting up a
well-run company use the 2 day rule for employees; keep it simple with a full
understanding for your basic employee within 2 days of hiring. There are only a
couple reasons people work these minimum wage jobs, they don’t have the
mentality or education, or they are between better jobs and have their resumes
on the street. Management can have
their own more complex supplemental system, and of course, user names and
passwords. I have experienced over
and over companies expanding rapidly through acquisitions of other
companies. Before these companies
close on a deal they truly need to look more carefully how they are going to
integrate their software with the other company and its compatibility. This was a nightmare in 2008-2009 when
banks and investment firms were being merged. Investment firms made useless trades and banks had accounts
that were in chaos.
- Security. Security and theft is important for all
retailers. Theft costs go right to the bottom line. There are various kinds of theft including white collar
crime, shoplifting, store break-ins and theft directly from the cash
drawers. Set up a system to remove
excess cash from the cash drawers once a certain amount has been reached, let’s
say $200, and place the money in a backroom safe until a trusted employees
makes a bank deposit run or a security firm makes a pick up. In the case of the company I am
analyzing they have a relatively high theft rate. Nationally they have phony cameras throughout stores, and
yet have had many thefts.
Sophisticated thieves know a fake camera from a real monitored
camera. In this case, when a theft
occurs they have no photos to give police nor can the police give photos to the
news media. A security camera
system can start as low as $500-$1000 per store. At a minimum have two cameras, one aimed at the entrance and
another to cover the sales counters or isles; the money. A few year’s ago I started two retail
stores and we used ADT Security.
One store was broken into and robbed twice. The thieves cut the main telephone land-line to the shopping
center, not just our store. Therefore
they had free access. The thieves broke into and robbed most of the stores in
the shopping center except for the big box stores that had more advanced
systems in place. In this case, we and other retailers did not have a back up
for ADT to work. Lessons learned
the costly way!
- This
company has a very dated check out system for customers with too many steps to
take for employees, and extra paperwork in terms of receipts. This is
frustrating for the employee and customer, thus costly to the company. Stay up
to date with new equipment and systems.
Cash drawers should be locked except when making a sale. A good cash drawer should be locked,
and only available when a sale is made, by employee code or a key to unlock.
- Management
style. Again, this section is
addressing the company I am reviewing.
The company has an old fashion dictatorial style of management, one that
leads to failure. It is “do as we
say”. This includes no talking
amongst employees at most times.
Employees need to have fun at work, too much time of the day is spent
working not to have fun. Companies
should realize communication between employees brings new ideas and builds
teamwork. Happy employee’s
attitudes rub off on customers.
Also, with a pleasant working environment employees respect management
more and the corporation in general.
This company does not welcome employees commenting on how things might
be improved. Every employee could
bring forth new constructive, creative ideas. I could go on with this subject of management, but will
restrain. Good management realizes
each employee has an integral role from the CEO to the janitor. Each should be treated with the same
respect. Companies should learn
from employees as they are the hands on, everyday people. Give employees freedom, they should not
be slaves.
I hope some of this information helps you in respect to
starting a company or investing in one. The more time you spend in business,
hopefully the more lessons you learn.
The main thing is that you take pre-emptive strikes to keep losses at a
minimum and increasing bottom line.
The other point I am making with this blog is that you can make a
mistake assuming because a company is publicly traded, large, nationally well
advertised and appears great, that it is.
