Dog Days

Man, am I bored. Business is taking a nice nap. This week could end up as the worst of the year to date. July will be the first un-spectacular month of the year, and August (with its nine-day vacation) could be downright poor if the current trend holds up. Traffic is down and the macroeconomic news remains grim, so I’m not worried that I’m doing something wrong. But it does get me thinking about how I might be able to goose things.

I don’t have any medium- or long-term projects going. This year’s robust sales gave me a good excuse to turn my back on the old, persistent problems that I’m sick of thinking about – no developer support, no marketing or advertising initiatives, shitty search engine rankings, no open-to-buy dollars – you’ve read this lament over and over. Unless “natural growth” (a dubious concept) carries Curio City forward on momentum alone, 2009 isn’t going to match 2008’s progress. I either need to surmount one old obstacle or to put something new into play…and I need to invest the effort now, before Christmas ramps up.

My motivation falls off along with sales. It’s easy to put Curio City on autopilot and tend my garden or putter around the house instead. I’m not much of a spark plug anyway. Even if I manage to kick myself back into gear, I’m not sure where the effort should go. What can I do by myself…isolated, without resources, and bereft of new ideas?

Well, I can reduce my PPC ad costs. Google is costing me about $10 per day. First I deleted most of the “Product Categories” campaign and tuned up what’s left. Those generic keywords (e.g., “unusual clocks”) were costing up to a buck a day with only miniscule payoff.

Then I tended to my “Product-specific” campaign, which I neglected while sales were robust. For an example: Thanks to ridiculous shipping charges from the Left Coast, the gross margin on my one mechanical coin bank struggles to reach 40%. It’s dubious whether I should even carry this thing at all, much less pay to advertise it. Yesterday I spent $3.28 to buy 16 clicks and no sales. The keyword “coin banks” alone has cost $25.33 to date to produce one sale. Buh-bye! I have spent an astonishing $105 on advertising record purses, and recorded only two conversions (although I’ve sold more purses than that). I wonder if I'd ever sell another purse if I were to shut those ads down entirely. Whenever my attention wanders away from PPC advertising for more than a week, I start to bleed money.

Rising prices sent ten more Yahoo keywords into dormancy last week; I deleted nine of them. My Yahoo spend is comfortably below $5 per day now…but given its lousy results, why am I even spending that much? Given the rate at which Yahoo keeps trimming my keyword list, they seem to have reached the same conclusion.

Reducing costs by a buck or two a day is nice, but it doesn’t increase sales and might even harm them slightly. What else can I do?

I could pursue more links. My percentage of referral visits remains stuck at around 20% despite landing links at Dayclocks.com and Panthervision.com in the past several weeks. Octopus Overlords referrals came roaring back when that forum was resurrected. But my #1 source by far is search.ebay.com. Huh? Where does that come from, and how can I affect it? And why don’t my other forums – Popehat.com and GamingTrend.com – even rank in the top 50? I suppose I could improve the links in my signatures on those sites, and see if that makes any difference.

I can try to remember that Google Base expires every month, and upload a new data file before that happens instead of my usual 3-5 days after the fact.

I can keep hammering out blog posts in the hopes that I can find new ideas through brute force.

None of this adds up to a hill of beans. I need to step out of my comfort zone and initiate something serious. But what? Figuring that out should be next week’s goal. Maybe I should follow the open-to-buy formulae to some conclusion.

Open to Buy Revisited

I spent $1,000 more in July than my old OTB method indicated was prudent. I pushed the red ink to well over $2,000 and drained my operating cash to its lowest level ever. Naturally, I turned my liquidity into inventory just as business dropped off…and, naturally, I barely scratched my merchandise wishlist. I could easily spend another $2,000 to replenish a few items and get everything new that I’d like to try.

Since I managed to spend that money without the sky falling, I decided that I’m going to reset my OTB to zero at the beginning of August. As we discovered three weeks ago, that old number is a rough guideline at best.

On Vacation

On Vacation

I am champing at the bit for our annual week in the Berkshires, scheduled from Thursday, Aug. 7 through Saturday, Aug. 16. Spending time in my favorite place on earth – well, outside of the Caribbean, anyway – is the high point of the summer...itself the high point of the year. For most of the time we rent a “cabin” – which is actually larger and much, MUCH nicer than our house – called Whitman Woods. Because they only rent in one-week increments, we have to spend the first two nights at our original Williamstown address, the Maple Terrace motel. That works out to two nights “in the city” (a short walk from downtown Williamstown) and seven in the mountains (near Jiminy Peak).

During our vacation we’ll see a BSO concert at Tanglewood and visit MassMoCA, the Williams College art museum, and the Clark Institute. We’ll probably drive the Miata through Vermont's twisty two-lanes, take a hike or two, and hunt down one or two other local attractions on a whim. We will dine in at least half a dozen favorite bars and restaurants. And we’ll spend a good deal of time just hanging out at Whitman Woods, watching movies and playing with our computers. This year, our 25^th wedding anniversary falls toward the end of the week (Aug. 13). We don’t have any specific plans for that.

Obviously, Curio City shuts down when I’m away from home. I’ll suspend my PPC ads, post a “warehouse closed” notice on my News page, add temporary language to the Welcome message on my home page, and send out a newsletter reminder to my subscribers. If history is any guide, I’ll still get a few orders during the week. Those customers will receive an email advising them of the shipping delay, and of course I’ll check email daily for anything else that needs my attention. There’s always something. If by some remote chance somebody places a large and urgent order, I could drive back to Braintree to fill it. Since it’s 2.5 hours and a full tank of gas each way, it would take a mighty fine order to compel a return trip.

I could close Curio City completely. There’s a simple toggle to turn the website off. Doing that would probably be a terrible idea. Replacing my store with a “closed” page would ruin my already dismal search engine rankings and drive away who knows how many potential customers who arrive directly, or through organic search results? The consequences would reverberate beyond such time as the store is actually closed.

At what point does Curio City become too big a business to simply walk away from for a week? For now, I only lose most of one paycheck -- a mere pittance. If I manage to double my sales again next year, I might have to take a hard look at whether I can afford a vacation.

Suppose I wanted to take two weeks in the Berkshires – or more? Suppose I unexpectedly get an opportunity to return to the Caribbean someday, or maybe even Europe, where I can’t haul my laptop along with me, Internet access is iffy, and I can’t drive back to handle emergencies? Curio City’s going to be a one-man show for as far out as I can see. What happens when that man wants – or needs -- to take time off?

I can’t answer that.

Not Meant to Be

To my surprise, the jewelry vendor that I wrote about a couple of times (most recently just last week) never answered my last-ditch come-to-jesus email. So I must reluctantly pronounce our association dead. I suppose there’s no harm now in revealing that I was talking about Morse code jewelry. That’s right: Very nice, high-quality, attractive bead necklaces with encoded messages. The jeweler positively will not work on a special-order basis, and I’m equally positive that stocking a few standard words would not work; online shoppers demand customization. The two other Morse code jewelry vendors who come up on Google do make their pieces to order, so there’s simply no way I could compete with them. Perhaps I will see if one of them is interested in partnering.

On the remote chance that “my” jeweler might read this post: I’m sure that your work will sell on your preferred terms in bricks-and-mortar boutiques. If you ever change your mind about Internet sales, you know how to reach me. Meanwhile, good luck.

One reader asked some time ago why I carry jewelry at all. Sometimes I wonder myself. For one thing, most of my merchandise skews toward male-oriented, so jewelry is a good counterweight for the womanly holidays (Valentines Day, Mothers Day). For another, there’s no wasted labor or money tied up in inventory because jewelers can make their pieces to order. My only really successful jewelry line (typewriter key jewelry) died of supply problems. Morse code jewelry could have filled that same niche – unusual, hip, and personalized – but without being limited by vintage materials. It would have been a great line.

Oh well. Something as good will come along eventually, or I’ll find somebody else doing the same concept with a more successful business model.

• The Zombie Store
• Legal Extortion

Let Us Now Praise Famous Products

My DayClock (product #37) tells me that it’s Friday again already. I don’t have a blog post on the hook for today. Let’s see what I can whip together out of fragments.

I intended to pay homage to products that have passed on. My inspiration was the Mini-Briefcase Business Card Holder (product #16). It took over two years to sell 63 of them. The retail started at $5.99. I gradually raised the price to $9.99 as my supply dwindled. Then, just as I got down to two pieces left, I discovered that the wholesaler had restocked. The cost went up from $3.02 to $4.25 apiece, but as I’m sure that I can still get $9.99 for them, I brought in 50 more.

Since that’s as far as I took this idea, I’m going to leave it there for today. This post will now degenerate into unfocused rambling.

The jewelry vendor that I found at last Spring’s Cavalcade of Crap decided that she cannot profitably work on a special-order basis, and it would surely fail as a non-customizable stock item. So it looks like it’s going to fall through after all this time. It’s a pity; it would have done quite well and enhanced my product mix. Google tells me that two other vendors are using the same concept. One sells rings and bracelets ranging from $50 to over $1,000. The other sells cheap bead necklaces for $14. Both of them do custom orders. My vendor would have filled the wide niche between those extremes. We could have hit that one out of the park. I’m not going to reveal the concept today because the jeweler has not yet replied to my last-ditch pitch, and I’m still not 100% convinced that the deal is dead. She just has to decide whether she wants to sell online or not. Her stock pieces will probably do OK in stores, and she might be content with that.

Is the summer slowdown finally here? After a stellar couple of months, last week was the first disappointing week in ages. Right now, it’s nip-and-tuck whether I will even beat LY. I think the government stimulus checks and tax refunds have all been spent, and the economy is about to catch up with me. Or maybe not...the occasional off week is inevitable. One nice hefty sale could change my tune at any moment.

Now I’ve got to mow the lawn. After lunch I’ll process some orders and make a run to the post office and UPS Store. A large shipment of caps awaits me there, along with a couple of smaller boxes. My wife unexpectedly needed her Forester in Framingham today, so I can only retrieve one Miata load…and that ain’t much.

Reason to hate Yahoo: Same old reason: They raised the minimum prices on a total of 43 of my keywords in three separate batches. I deleted 30 of them. Nice going, Yahoo! If this keeps up, their only clients will be eBay and Amazon...which, I imagine, would suit them just fine. Oh well, at least they’re freeing up money that I can use to cover Google’s ever-rising prices.

• The Zombie Store
• Legal Extortion

Your Open to Buy is Now Closed

This topic crops up so frequently that it deserves its own post, in which I shall attempt to define the problem, if indeed a problem there be, and brainstorm a remedy.

“Open to buy” is simply the budget that’s available for buying merchandise. I calculate mine very simply: Take the average cost of goods sold, increase that percentage by as much as my P&L spreadsheet says I can, and spend that percentage of gross sales as the money comes in (and as the need arises). The problem is that the need always arises before the money comes in.

I was using two different formulae to figure my OTB percentage: one for my inventory history to date, and another for merchandise that’s in stock right now. The first formula gave me an effective cost of 49.83%. The second formula gave me 48.33%. This year I have been devoting 50.89% of gross sales to my OTB. If my cost numbers are right, that ought to cover the cost of goods sold with a smidgeon left over.

When I examined these very carefully, my cost numbers were not right.

First, and most egregious: I had reversed total markup and total cost. The actual cost numbers should have been 50.17% and 51.67% respectively (versus the 50.89% I’m actually using).

Second: I was factoring markdowns and discounts into one of my calculations, yet I also track those as line items in my profit-and-loss (P&L) spreadsheet. Using them in OTB counts them twice. When I removed those numbers my historical cost, unadjusted, changed to 48.51%. That comes from a very simple formula:

Cost of inventory + Shipping costs / Total retail value = Cost percentage

Third: My other calculation (the one for in-stock merchandise) omitted shipping costs. Here’s the corrected formula for this much more relevant number:

(Quantity Sold * Cost Each) + (Quantity Sold * Freight Each) = Cost of Sales

(Quantity Sold * Retail Each) = Gross Dollars Sold

Cost of Sales / Gross Dollars Sold = Cost Percentage

This comes out to a cost of 49.14%, vs. the 50.89% that I’m actually allocating to OTB. That’s not so bad. I should be able to replace the goods sold while increasing my available inventory dollars by 1.75% overall.

Knowing that my formulae are fixed (I’m not still reversing markup and cost, am I?) gives me a warm fuzzy feeling, but it doesn’t explain why my OTB is constantly bleeding red ink. So…to the Internet!

Surfing eventually brought me to the Retail Owners Institute website. I should put some time into reading this site. Here’s what I’ll call “the official formula” for figuring your OTB:

Planned Sales + Planned Markdowns + Planned End of Month Inventory - Planned Beginning-of-Month Inventory - On Order = Open to Buy

I had a eureka moment while staring at that formula: My OTB method addresses the cost of replacing merchandise that already sold, rather than the cost of merchandise that I intend to sell in the future. So far, this year’s sales are running more than double last year’s. Where does the additional inventory to support increased sales come from? Not my OTB budget. That’s why I am always in the red, and will be for as long as sales keep growing dramatically. If it weren’t for deficit spending, I’d still be working within my opening inventory level.

The official formula also allows for seasonal stock levels: You need a lot more stuff in November than you need in July. Using my method, the inventory dollars to support Christmas sales don’t show up until the sales actually occur, which is too late. Once again, I have to drive my budget way into the red to cover anticipated sales.

I’m going to have to either switch my OTB calculations to the official formula, or adjust my own simpler formula to accommodate expected growth and seasonal stock levels – accept and institutionalize the deficit spending, as it were. Since I don’t have a clue how I’d tackle the latter, let’s try to plow through the former.

Planned Sales is easy enough, even though actual sales have demolished my plan every month so far this year. Planned Markdowns is also easy. Since I don’t do very much discounting or hold seasonal sales, I can just plug in my standard markdown plus discount percentages. The number is minor and doesn’t fluctuate much.

Inventory numbers are more elusive. Amazingly enough, QB and my Excel sheet agree to within $131 on the value of the merchandise that I own right now. But what should my inventory levels be? This opens a topic that always makes me glaze over: merchandise turn rates. I found two different ways to figure out my turnover:

Inventory turnover = sales / average inventory at retail, OR

Inventory turnover = cost of goods sold / average inventory at cost

Industry benchmarks say that my turn should be a bit more than 4. The first formula says my turn is 0.83. The second says it’s 0.85. That’s right: The amount of stuff in my cellar exceeds the amount that I sold all of last year, when it should ideally be about 25% of LY’s sales. Having so many dollars tied up in nonperforming stock is another source of red ink, since they aren’t available to buy performing stock (or try new products).

Here’s a hot tip for my blog readers: If you have not checked out the Specials section lately, it’s worth your time. Everything there just went down by anywhere from 50 cents to five bucks, and I added a few more slow sellers. I wonder if I’d get a tax deduction for writing off some things entirely. Some small percentage of my stock is not going to sell at any price. Do I need to start selling remainders on eBay again?

Theoretically, I should only reorder those items that are turning more than four times per year. That would be lighted caps, Switchables, golf balls, a few gardening items, a few gadgets, a few clocks (DayClocks FTW!), and maybe some smoking and drinking accessories. Those are the only lines that promise to approach four turns.

Also: I don’t have much faith in those low turn numbers. I’m comparing my current stock level with last year’s sales numbers. If current sales trends hold up, and I keep my inventory level under control, my effective turn rate for 2008 should be closer to 1.5. That’s still a long way from 4, but not quite as dismal as it looks at first glance.

OK then, some conclusions:

1. My old OTB calculation is broken because it’s reactive, not predictive.
2. Using the official retail OTB formula would require me to define a planned inventory level.
3. The officially recommended inventory level depends on my turn rate, and would require me to either dramatically reduce my current stock or quintuple my sales with the same stock level! Either way, I’d have no OTB until my inventory comes into line with my sales.
4. I might achieve #3 by holding a massive sale and buying nothing but caps.
5. Doing step 4 would turn Curio City into Cap City, so improving my turn has to be a very long-term project.
6. Defining my OTB problem is a long way from solving my OTB problem.
7. This all looks hopeless and depressing.

Upon arriving at point 7, I tried to bypass OTB entirely. I added up my cash, subtracted all expected expenses (even federal taxes that aren’t due until the end of the year), and found $683 that’s not currently obligated for anything. That’s peanuts. Rather than apply it to OTB I’m going to keep it as a cushion.

Now I’m back to the dilemma that started this whole thing: Should I loan the company enough of my own money to retire the OTB debt and bring in a few new products, even though my cash balance is positive?

As I keep saying, I cannot sell what I do not have. I should buy what I need, and to hell with the red ink until it actually drains the treasury. I can play the float more aggressively. I’ll loan the company money if I really do have to bail out of a cashflow crisis. Or maybe – horrors! – maybe I’ll even carry a balance on my credit card for a month or two. Maybe the company doesn’t need to borrow the money from me.

Oh, who am I kidding? I can’t stand to pay interest. I’ll use my own money before I borrow it from a bank. But I’ll consider this one a short-term loan to be repaid from Christmas receipts.

So now it’s about logistics. On one hand, I shouldn’t rack up debt until closer to Christmas, when I can expect to pay it down rapidly. OTOH, I had my biggest sale ever two weeks ago, and another very substantial one just last week. The business is there now. Even though I should reduce my inventory to improve my turn rate, and my OTB certainly ought to be closed, I am still placing orders, and I’ve still got a new-product wishlist to work off.

Yesterday I placed some orders that drove my OTB deficit to a record level. There is no longer any reasonable hope of getting back up to zero. If it’s a bigger risk than I’m comfortable taking, at least I understand why I’m taking it. We shall see how it pans out.

• Let Us Now Praise Famous Products
• The Zombie Store
• Legal Extortion