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Burlington Chocolate Fest

Lending a helping hand

Eliminating unprofitable merchandise

May 12, 2010 | 01:05 PM
A merchant I know of applied to one of the leading banks for a higher line of credit.

The owners were hoping to take advantage of purchasing inventory at a reduced rate through greater volume commitments. The retailer brought along his latest financials as evidence of his trustworthiness and merchandising ability.

The statements showed that the company had grown from a modest beginning to a very favorable net worth. The bank was very much impressed, but was disturbed that the company was unable to meet its current bills on time. So the bank decided to investigate the facts behind the figures before taking further action. They found that the owners operated attractive, well-located stores. The merchandise was skillfully displayed with seemingly good acceptance. Floor traffic was ample and the sales volume seemed satisfactory.

Everything appeared to be in order, except the inability to pay their bills on time. Despite more than 35 years of experience in the business, and the ability to show a "paper profit," the company didn't know how to buy. The money they thought they had was tied up in too many low profit items and their inventory was cluttered with obsolete items.

The channel had muddied and their stream of liquid assets had dwindled to the point that it interfered with business progress and profitability. The lack of cash threatened to topple the structure. The application for a higher line of credit was regretfully denied. After 35 years building a business up from nothing, the company suddenly found itself a victim of what the banks call "unbalanced experience in the management brackets."

The reality is that market share is more about strategy then it is about "things." Two retailers can be selling the same product with entirely different results — one for profit, the other for loss. Competition is never about "a specific product" but rather about ownership's ability to manage inventory, identify obsolete products, read negative trends and take corrective action.

If you have a business and have a question specific to your situation, you can contact me at genevabizconcepts@att.net and I will be happy to help. Also, log onto the Regional News Web site, click on Powers' column under Community and Society and respond in the feedback area.

Powers is a semi-retired senior executive analyst who has worked with more than 1,800 small businesses during his 30-year career.

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