The Zombie Store

Before I raise this topic from the dead again, I ought to mention the economic news that still overshadows everything. Congress has larded up last week’s failed bailout bill with $100 billion worth of “sweeteners” – or bribes, more accurately – that might grease its passage through the House today. Conventional wisdom now says that if the bill passes, we are merely facing a deep recession. If it doesn’t, we’re facing complete economic meltdown.

That would suck. I wonder if it's true.

Last week's sales started out strong, and then weakened with each passing day. The first fiscal week of October still blew away both LY and plan, simply because LY was so weak. Still, I'm content with average sales, under the circumstances.

And that’s a good enough segue into today’s subject: The Zombie Store.

Eventually Curio City has to grow up and get its own place. Yet, only two months each year bring in enough money to cover a rent payment. It’s going to be a very long time before revenues rise sufficiently to cover commercial rent the other 10 months. By that time, my November and December business will have outgrown my ability to handle it.

This conundrum always points toward opening a store. Its purpose would be shipping/receiving for my Internet business, while producing just enough additional sales to cover its own expenses: Rent, utilities, and 1-2 employees. Even though I slew the store once after considerable anguish, the concept is going to keep coming back from the dead until the underlying problem is solved.

(Incidentally, the financial meltdown makes me really, really glad that I decided against borrowing big bucks to open a store this year. I would surely be facing final failure right now).

While I was killing the store, I mentioned once that maybe Curio City should always be a home-based business. This heresy was discussed very briefly during Wife Summit II, and then dropped. Today I’m going to resurrect and explore it.

The zombie store keeps arising because my commercial space has to bring in enough money to cover its existence; web sales can’t subsidize such an albatross. But I can justify feeding a money pit if it fills more than one purpose – such as housing.

Why, exactly, does CC need to move in the first place?

1. Our house is too small. We run two businesses out of a 1,100 square foot “starter house” that we bought 20 years ago. My wife is a pack rat, and my merchandise needs storage space. The house is simply stuffed to overflowing.

2. It’s configured all wrong. My office is a closet on the second floor. My warehouse is a dark cave in the cellar. My loading dock is an ordinary door on the first floor, with steps down to ground level. When sales are good, I spend a lot of energy running up and down stairs. It couldn’t be less efficient.

3. It’s inseparable from our living space, so I can never bring in an employee. That means I can never get sick or take a long vacation. I have to work ~350 days a year.

My wife (Anne) and I would both like to trade up to a larger house for personal reasons. The ideal time to do that would be at the bottom of the depressed market – probably 12-24 months from now, say the prognosticators. That’s also about when I expect Curio City to need more space.

To serve as Kraken Enterprises world headquarters, the new house would need these characteristics:

• Two offices (repurposed bedrooms), ideally on the first floor;
• Two actual bedrooms and bathrooms (one for us, one for guests);
• Warehouse space on the first floor (a heated garage or utility room, or another bedroom);
• Easy drive-up access to the warehouse;
• Secure entrance/exit, separate from the rest of the house, so that an employee could come and go in my absence;
• A “public” bathroom for my employee and Anne’s students;
• Another area where Anne can teach her classes; and
• Proximity to commercial shipping outlets (post office and UPS store).

That’s a tough list. I count four to six bedrooms and three bathrooms (the public one, a private one, and a guest bath). That is a ton of house to expect for $500,000, particularly if we want to stay in a desirable neighborhood and not move out to some damned suburb. But we might just be able to swing it if we can buy at the market bottom. I can’t justify buying a new house purely on its merits as living space. But if it doubles as the zombie store (and if Anne is running her classes out of it, too)…well, suddenly it makes sense. Some of the money that Curio City would have spent on rent would instead offset our utilities and expenses, just as Curio City already reimburses us for telephone service and gasoline.

Unfortunately, we have a $0 down payment, almost no savings, and $40,000 worth of personal debt. Could we churn the equity in this house into a new house? In the pre-crash credit market, no problem. Now it’s going to depend on how the mortgage industry gets restructured. Our house is worth roughly $200,000 more than we owe on it. Subtract the equity loan, subtract some repairs and spruce-up, subtract the costs of selling and moving, and we would still come out $100,000 in the black. That’s a 20% down payment on a $500,000 house. The logistics of financing and moving are scary, but shouldn’t be unsolvable.

One large problem remains: It’s a residential address. None of the carriers will provide business services to a residential address, nor would I ever get volume shipping rate discounts. I’d still need a commercial place to accept deliveries, and I’d still need to drive my shipments to the post office/UPS outlet every day in my little Miata. I’m going to outgrow the UPS Store within the next year or two.

Maybe renting a storage facility could fill this gap. Anne says that you can arrange for one to accept deliveries. But now I’m back to paying rent again, and that inevitably snowballs into opening a store that will pay its own way, and that in turn negates the whole home-business argument. Outsourcing order fulfillment is another (expensive) non-store option that negates the arguments for being home-based.

So I just solved nothing by spilling all of those words. Well, I’d like to keep this idea warm. If we discover that we just can’t do it, I’ll resurrect the zombie store yet again.

Forthcoming Topics:

• SCORE!
• Legal extortion
• Wacky ideas

Ding, Dong, The Store Is Dead!

What a relief.

I tried to talk myself into it. The financials probably would have eventually worked – as the wife observed, I was probably too fixated on a sales-per-sq-ft number with a weak basis. A year or more of exhausting hardship and chaos might have eventually settled into a stable, profitable base of operations. Of course, surviving until “eventually” was always the corker. Certain aspects of owning a mature store did (and still do) appeal to me. But I could never convince myself to go through hell to risk that nebulous payoff. I’m almost certain that I couldn’t have done it all by myself, and I would’ve destroyed my web business in trying.

The certainty that a store would completely take over my life was the biggest drawback in my mind, along with the staggering amount of work required to make it happen at all. To Anne, it was the thought of borrowing >$60,000 during an economic recession, and with our personal finances already very wobbly. We aren’t doing very well. I make doodly squat, and she hasn’t had a raise or a bonus in three years even though she does nothing but work, work, work. Savings are bleeding away, debt is mounting, and inflation pinches the household budget more and more every time I buy groceries or try to pay property taxes or need car maintenance. Coddling Curio City looks more and more like a luxury that we can’t afford.

Wife Summit II ended with a mutual commitment to endure a couple more years of hardship, at least for as long as growth remains encouraging. Now that I don’t have to open a store, I’ve decided to divert a couple thousand dollars out of “startup money” and into our house, which is literally rotting away. Hopefully we won’t have to tap the home equity line of credit that we have no way of repaying.

“Curio City Offline” is not dead. It’s merely resting until such time as “Curio Metropolis” needs to move out of the house. By then, Kraken Enterprises should have enough cashflow to reduce the risk of rapid failure. I might even be able to hire someone to help me do it. In theory, anyway.

With the store slain for now, I can focus on moving the website forward. Although the risks are much less than a store’s would be, they’re out there. I need to push forward aggressively if I hope to keep doubling my sales. There are some time bombs coming up.

The first one, paradoxically, is lighted caps. If you’ve been following along, you know that this single product line accounts for 75% of my total sales. It is the sole reason that March is demolishing LY’s sales. In my fine tradition of finding the dark cloud beneath every silver lining, I know that these caps won’t sell this well forever. Sooner or later, a deep-pocket competitor will out-compete me, or consumers’ whims will just wander on to something else. Even if caps do keep cranking along, I’ll soon be up against LY sales figures from months that included cap sales. The year-to-year comparison will look a lot less rosy when I’m comparing apples to apples.

Earlier I identified three major steps to take Curio City to a higher plane:

1. Increase my merchandise selection and improve its presentation;
2. Increase my traffic by improving my search-engine placement; and
3. Improve my conversion rate.

Step 1 is the most straightforward, and the most fun. So let’s talk about that one this week.

I have two immediate problems: Way too many inventory dollars locked up in old and unsalable products, and an open-to-buy budget that is constantly struggling to reach black ink.

Nothing cures a budget shortfall faster than a big wad of cash. But pouring in more of my own money is counterproductive; after all, Curio City exists to put money into my pocket, not take it out. I would much rather let operations lift the budget back to where it belongs than infuse a new loan for it. (And just because I have money in the bank labeled “startup money” doesn’t mean that I want to spend it on Curio City; I would love to divert some of it into personal needs instead). So rather than transfer all my money into Curio City’s treasury and go on a shopping binge, I’m ordering just those half-dozen or so new products that I’ve had wishlisted since January. Maybe they’ll sell enough to cover the bills before the charges hit, or maybe I’ll need to inject doses of rescue money here and there to keep the charge card out of the red. The objective is to keep my options open without loaning the company a lot of new money.

I started with an expanded line of purse hooks. They would not have been my first choice, but the vendor is offering trade show pricing plus free shipping. I can’t resist a bargain. And maybe they'll get a bump from Mothers Day.

Next up is a line of recycled bicycle chain housewares (Use the Related Products tab to see the whole line). I expect them to sell slowly, but reliably, like the Vinylux products. I’m bringing these in right now to take advantage of the upcoming Aging Hipsters linkage. Which, it occurs to me, I’m supposed to finish today. Drat!

Neither the purse hooks nor any of the other new things on my list have blockbuster potential, but they all enhance my overall product mix and promise to sell steadily. Steady sellers are just as important as bestsellers, if you have enough of them (remember the 80/20 rule?). Meanwhile, I’ll keep some cash ready in case I luck into the Next Big Thing. If my friend Matt had not mentioned lighted caps last summer, I never would’ve found them. If I hadn’t had a few bucks in my open-to-buy at the time, I might never have tried them. There’s a huge right-place, right-time factor in product discovery.

To recycle some of my frozen inventory dollars, I should be ruthless with the markdown pen, and then send out another newsletter announcing a sale. Markdowns hurt the bottom line, but merchandise languishing in the cellar hurts the top line. So those are my objectives for the next week or two: Bring in new product. Turn over the Aging Hipsters list. Take draconian markdowns on my oldest stuff. And announce it all in a newsletter.

The hoped-for Sunshop upgrade didn’t happen, btw.

About Newsletters

My Constant Contact bill rose from $15 per month to $30 when my mailing list topped 500 email addresses (at the beginning of last week, I had 506). My mail open rate averages 21.3%, and Constant Contact says that the average for retailers is 26%. So those were two good reasons to prune my list.

With some effort, I figured out how to identify those addresses that have never opened a newsletter. 335 of my 498 contacts were on the never-opened list, leaving only 163 presumed “good” addresses. Last week I sent those “dead” addresses – which included a surprising number of friends whose ISPs must be blocking my emails -- a confirmation request. A week later, a handful of them had confirmed that they want to stay on the list (although none of my friends confirmed). Now my monthly fee is back down to $15, and I expect a much higher open rate from the 180 good addresses remaining.

None of this is likely to help the bottom line: each newsletter ultimately only delivers 1-3 “extra” sales (those with coupons work best, of course). They barely cover the cost of the newsletter service, much less my time spent creating them. But there is value in keeping my name in front of people, and like most other things about Curio City, newsletter results improve very gradually as I keep building a bigger and stronger customer base. Also like most things about Curio City, it’s not growing big enough fast enough.

Reasons to hate Massachusetts

Sensing that Kraken Enterprises is a great source of untapped wealth, the Commonwealth just raised my unemployment tax contribution rate from 2.53% to 4.78% -- retroactive to the first of the year. Thanks, guys! I guess I can collect a few bucks a week if I lay myself off. Which I might have to do, if this bloody state keeps raising my taxes. Massachusetts has the highest unemployment taxes in the nation, and pays the most generous benefits.

Reasons to hate Blogger

This interface for post creation blows. I can't tell what font or size I'm using. The spacing goes all wonky. Headlines never look like they should; it absolutely refuses to resize the "Massachusetts" headline above. Whenever I open a published post to edit it, the font appears to be 72-point.

I am nearing my 100th Blogger post. Maybe it's time to move the blog.

March On!

Steel yourself, dear Reader, for another long navel-gazing session. This one has one particular reader in mind.

Year-to-year sales comparisons are a little flaky because I’ve changed the way I define gross sales, and the way I chop the calendar into fiscal months. Last March was a five-week month, and this March has only four weeks. By any measure, though, last March was a bloodbath. It held 11 days with no sales at all (including a record six-day shutout streak) plus three more days with gross sales under $10.

This month started out looking just as grim. Postage costs sent the first two days negative. When I left for my habitual Tuesday bar night, my weekly gross sales had recovered to a whopping $1.22. Then a flurry of orders turned the month around. By Wednesday morning I had done 66% of last March’s monthly sales and a third of this year’s plan. As of right now, I’m happily looking at 90% of LY and 50% of plan. Even my deep open-to-buy hole is finally filling in. It’s astonishing how suddenly things can turn around. (And that cuts both ways; sales can, and often do, collapse without warning. It would not surprise me to go directly into a days-long shutout).

Here's a paragraph is from a draft of this post written on Tuesday evening, before I left for the bar:

“All of my choices look hopeless. “Steady As She Goes” is going steadily nowhere. “Curio Metropolis Online” seems like a pipe dream when I can’t even solve my current minor technical problems or find a new developer to knock off my extremely modest and oft-postponed upgrade checklist. And how could I possibly cover the rigid cost structure that comes with “Curio City Offline”: $2,500 for rent, $500 for utilities and insurance, $1,300 for payroll (that’s one minimum wage employee and not a cent for me), another $1,000 in debt service, hundreds more in assorted smaller bills…where does all that money come from??? I would need to gross a minimum of $12,000 a month just to cover core expenses and replace the goods sold, without making a dime for myself. That is ridiculous. There is simply no way a store is going to bring in that much money, not in March.”

What a difference a day makes. After three days without a single order, Curio City snagged 15 sales in three days, and the tenor of this post changed from despair to optimism.

T.C.O.B.

Before I return to my regularly scheduled anguish, two operational trends bear mention:

First: Since I upgraded PayPal from "standard" to “Express”, at least half of my receipts have gone directly into the interest-bearing PayPal account where I park my operating cash. Before the change, fewer than 10% of my sales went through PayPal. PayPal’s processing charges are about the same as credit card fees, without the annoying 2-4 day delay and the weird fee guesswork. The less business I have to put through CTS Holdings, the better. I loathe that credit card processor.

Second: For reasons unknown, I had several international sales last week – three to Canada, one to Great Britain, and one to Ireland. Although I’m ambivalent about the extra work and the uncertainty involved in exports, I am grateful for every sale I get, especially during March’s anticipated drought.

Incidentally, my original developer has unexpectedly found time to upgrade Sunshop from version 4.0.8 to the current 4.1.0. In addition to fixing a couple of obscure bugs, the newest version will finally let me enable the Google Checkout routine that gave me such grief. And it adds a shipping charge estimator to the shopping cart. Both of those additions are sure to improve conversions a wee bit – and given the increase in PayPal payments since I upgraded, I expect a lot of shoppers to use Google Checkout, too.

Crystal Balls

Why did I give you this long diversion about March sales?

Wife Summit II happens tonight at the Randolph Picadilly Pub, a homey place that has hosted many earnest discussions over the past 20+ years. This post is my last chance to lay it all out before I try again to force a conclusion. I have cash earmarked for Kraken Enterprises in the bank right now, with two more CDs maturing in the next six months. Will I finally spend the last of my inheritance? Will I roll it over for another year? Stay tuned….

(You might have figured out that I hate spending money. I only even had an inheritance because I was raised to be cheap. This is not exactly an entrepreneurial trait. Frugality separates the capitalists from the managers. I’m a good manager. The jury is still out on whether I’m a capitalist.)

This week’s unexpectedly strong sales emphasize the folly of changing direction while my business is still strengthening (in a recessionary climate, no less). QuickBooks says that YTD gross sales are 99.3% ahead of last year. Payroll – which lines my pocket – is running 75% ahead of LY. Net income – a.k.a. The Bottom Line -- is +145%. I must always hasten to add that the actual dollars involved are still low-budget, and I’m still poor. But despite my puny scale, the year-over-year improvement is undeniably dramatic. Now that I know how profits work, “Steady As She Goes” could almost double my personal income over LY. If I don’t change direction, I can take out some profits in December. Again: It’s not very much money, but how many people do you know who might double their income this year?

I know how to evolve “Steady” into “Curio Metropolis”: Increase and improve my merchandise selection…improve my organic search results…and raise my conversion rate. I understand how to do all of those things in theory, if not in practice. None of it is beyond my ability to learn. An expert customer who took an interest in my blog very kindly sent me a long, detailed list of SEO instructions that ought to improve my organic traffic at very little cost.

Last week’s unexpected busy-ness kept me from reviewing my store financials spreadsheet. I’m still using numbers that I compiled nine months ago. But I don’t think it’s going to change much. My calculations are correct. The most important starting assumptions (rent per square foot and sales per square foot) still look realistic. I can tweak a few variables here and there, but it’s not going to change the big picture very much.

A store is expensive and risky. At best, opening and running one will freeze my web business at its current level as I put it into caretaker mode. More likely, the store’s ravenous demands will force me to mothball the website entirely for at least a few months. At worst, the store will drag the website into bankruptcy as it goes down. The short-term financials are downright frightening; I see no way to avoid losing considerable money coming out of the starting gate. A store might offer the best income potential in the medium term (about five years), when the loan is paid off and I’ve worked the kinks out of my merchandise, advertising, and operations -- if it survives that long. But in the long run, you can only put so much stuff on the shelves and get so many people through the door. The internet is comparatively limitless. I always think of a store as a base for my web operations, rather than a goal in itself.

If I were forced to choose today – which is sort of the point -- this is what my crystal ball reveals: I stay with what’s already working (duh). I transition from “Steady As She Goes” into “Curio Metropolis Online” in an evolutionary way, getting constantly better at what I’m doing and investing money here and there as needed, rather than all at once. I won't need debt, and maybe not even all of my remaining startup money -- I could potentially spend some cash on personal needs instead. When the web business gets consistently too busy to run from my home – and I mean most of the time, not just for a couple of months – then I will open an offsite base of operations. This facility's main role is shipping/receiving, warehousing, and a place to employ help. It would be nice if it included a sales counter that earned enough to cover its own costs, but that would be secondary. For convenience, I'll refer to it as a "store", even though that isn't its main function.

When, Ken?

Sounds logical and practical, doesn’t it? How long would this process take?

I don’t know. My hunch, based on current growth, says that Curio City Online becomes Curio Metropolis by the end of this year or beginning of next. Curio Metropolis outgrows being a home business pretty quickly, and moves out either in late 2009 or late 2010 (assuming that its new home is a store, which has to open during the Christmas season). Late 2009 is my most ambitious projection, and late 2010 is my cautious one. Cashflow from the web should be substantial enough to subsidize the store while it finds its market and I iron out my inevitable mistakes. By the beginning of 2011 – about three years from now -- I would have a break-even store hosting a very profitable web business that pays me a living wage, and I would consider Curio City a mature business.

Look at it this way: Averaging five sales per day would produce enough income to help out with the bills. Ten sales per day would constitute success. Twenty would make me wealthy. So far this year, I’m averaging 2.25 sales per day. Getting from 2.25 to 5 does not seem that daunting.

Look at it another way: There are 6 billion people in the world. Maybe a billion of them participate in market economies. More and more of them shop online every day. At least 100 million of them make a lot of money. I just need to land 10 out of those 100 million people each day. Piece o' cake!

Asterisks and Fine Print

The first drawback is temporal. While I have a real shot at doubling LY’s sales this year, doing that year after year gets more difficult as the absolute dollars involved increase. My three-year timeline is a long way from guaranteed. Seventy-five percent of my business this year comes from one product line. That could peter out at any time, and finding something comparable is not even remotely guaranteed. There is very little that I can do if I find myself without at least one high-volume product to keep driving sales.

Anne has been supporting me for the better part of two years. I’m just now starting to make enough to keep myself in pocket money, and I’m nowhere near making a meaningful contribution toward our joint bills. We are both over 50 years old. We’re constantly postponing such goals as travel, housing upgrades, and even furniture and basic home maintenance. Our short-term, non-retirement savings are essentially gone. Anne’s being bled dry by consumer debt and parasites (me and her mother). Yes, Curio City should ultimately grow into our primary source of income. I’m counting on that. I have no other fallback. But how long is “ultimately”? We can’t wait 10 years. Even five years is an awfully long time. Can we endure three more years of tight money from a single income? How durable is my wife's patience?

None of my scenarios -- including opening a store – pay off any quicker or any bigger than the one I outlined above. The only reliable paycheck comes from a conventional job. At what point do I pull the plug on self-employment and try to get back into somebody else’s harness instead?

The second drawback is technological. I was an English major, for crying out loud. Understanding and solving technical failures, and keeping abreast of innovation, will always be a little beyond my grasp. “Steady As She Goes” cannot morph into “Curio Metropolis Online” until I can count on the services of an expert developer/webmaster – and the $90 per hour variety is not going to cut it when I’m earning $1.50 per hour myself. I should be spending my time searching for new products and creating web content, not trying to figure out why Yahoo hates me or why I’m getting 100 spams a day or why my Google page ranks are so poor or how my shopping cart generates H1 tags. I just spent over three hours figuring out that our internet connection died because I forgot to update the password in our wireless router.

I am better equipped to understand and solve the kinds of problems that a store will encounter than those posed by the Internet. I will always be behind the technical curve as long as the web is my primary emphasis.

The last drawback is logistic – physically moving and storing ever-growing quantities of merchandise, and ultimately moving it out of the house. My proposed path does not solve this. There is still a move to deal with eventually, and the impact of interrupting web operations grows worse as my sales get bigger.

So that’s all I’ve got. Anne still talks as if she wants to own a store, and I’ve pretty clearly acknowledged that I really don’t. She has an equal voice in the future of this business. Will tonight’s summit solve anything? By the gods, I hope so. I am sick of writing about this. I am sick of the uncertainty. I want to move forward.

Time Keeps On Slippin' (Slippin') Into the Future

I finally had a lengthy convo with the wife at Vin & Eddie’s a couple of weeks ago. Even after slogging through all of my posts, she was still all wound up about owning a store.

The promise of eventually owning a mature store, run by somebody else, is seductive. Both physically and financially, it could become a foundation for a renewed assault on the internet, where the real money (and my interest) lies. Successful retailers establish chains and franchises because the profit potential from a single store is constrained by geography and selling space. Internet sales are comparatively limitless.

A store sometimes feels as inevitable as Hillary Clinton once did. But getting from here to there – all by myself – is neither seductive nor inevitable. Like Hillary, it could flame out quickly, dramatically, and irreversibly. More than the money that's on the line, I worry about this drawback: I’d have to mothball my website while I pour everything I’ve got left into the store. The past two years of hard work and self-education have paid off in a growing, profitable, and debt-free business. Putting that aside to go massively into debt for something financially speculative (and logistically difficult) borders on insane.

Yet, continuing on my present course leaves two huge problems unsolved: (1) My personal income remains in the crapper, probably for years to come, and (2) I can’t kick Curio City out of the house, which limits its growth. February’s dismal sales emphasize just how little money I make. If it runs true to form, March will be even worse. I can’t go on like this year after year. I am sick of being poor.

The 4-LED camo caps arrived as expected. Within an hour of emailing the 16 shoppers who had requested notification, one customer bought 24 caps and single-handedly saved February. It didn’t cancel out the $900 sale that inflated Feb. 2007, but it sure as heck helped. (Not one of those other 15 people bought a single cap, btw.) If I subtract out those two abnormally large sales, this February ended up more or less even with LY. Fun with statistics!

As moribund as business is right now – averaging one small sale per day -- the ol’ P&L shows a YTD operating loss of only $56.45 – and that’s after covering my biggest annual expenditures like taxes, government fees, and accounting. 2008 is in good shape, and March’s sales target is low-hanging fruit. If it weren't for the pesky need to earn a living, "Steady As She Goes" would be the obvious path.

Would opening a store generate a big leap in sales, or would its greatly increased costs force my business into failure? Why would a store’s February numbers be any better than my website’s February numbers? A store’s costs are mostly fixed, compared to the website’s scalable costs. Curio City Online might not pay me a decent living for a long time, but neither is it ever likely to fail.

The only real result from my Wife Summit was a mutual softening of attitudes. Anne is a little bit more apprehensive about opening a store – particularly the financial commitment; I don't know if I can erect an impenetrable firewall between my business and our personal finances. I’m slightly more open to taking that gamble, although my fears are still obvious -- leaving money aside, I don't know if I have the personal expertise and energy to pull it off, and I don't want to jeopardize my online business.

At some point I’m going to accept what I already know: No amount of research or discussion is going to part the clouds and reveal a correct answer, because there isn't one. I need to make a choice and go for it. On this, my self-imposed deadline for making the commitment, I don’t feel any more confident than I did before I started all of this. In my weaker moments, I want to take the easy way out and get a normal job. Minimum wage would be a huge raise.

Faced with today’s deadline, I’ve predictably decided to postpone deciding for at least one more week. I put most of last week into the Aging Hipsters product research project that I mentioned in my last post. I’m confident that my week of unpaid labor will bear fruit in the long run. I will wrap that up this weekend, then return to the depressing financial analysis upon which my choice will ultimately hinge, and finally arrange Wife Summit II.

********************

A new reason to hate Yahoo: Last week I discovered that Yahoo is sending Curio City email to its customers’ Bulk (spam) folder, rather than the inbox, meaning that anyone with a yahoo.com address is probably not seeing my correspondence. So I tracked down their appeal procedure and applied to have my site whitelisted. They turned me down. I’m invited to apply again in six months if I change my policies significantly. Huh? What policies? I don’t send spam! This kind of mysterious and uncontrollable nonsense tips me away from the web and toward a store. Further effort might or might not change Yahoo’s decision…but how many other ISPs out there have blacklisted curiocityonline.com for no legitimate reason? Identifying and overcoming technical errors like that takes a level of expertise that I just don’t have.

A new reason to hate Google: OK, this one isn't as heinous as the Yahoo thing, but I'm trying to be even-handed here. Remember when I told you a couple of weeks ago that I had finally earned my first AdSense payout after two years of showing their ads? Wrong. They don’t actually pay until the balance hits $100. At the rate I’ve been going, that will take three more years.

You know how to help….

Any Progress?

Maybe just a smidgeon.

This week’s post was supposed to be a break from my drawn-out hand-wringing soap opera. I’m tired of thinking about it, so you must surely be tired of reading it. But my wife and chief advisor caught up on my blog yesterday, so I need to keep hammering at this now that discussion has become possible.

The wife (Anne) clearly wants me to own a store. She revealed an ulterior motive last Saturday at the Union Brewhouse. She has the idea, based on a craft store that rents out its basement, that my store might have “extra” space in which she could hold her art meetings and classes. I don’t know how this store found a lease with “extra” space. Rent and sales are both measured per square foot, and square footage includes all floor space – sales, office, storage, and even the bathroom. Because you pay the same rent on all footage, maximizing the percentage of selling space relative to non-selling space is key to profitability. There is no such thing as “extra” space unless you own your building, and thus break free of the rent-per-square-foot convention. Even then, you can't escape the need to maximize sales-per-sq-ft.

Buying a retail building is not in the cards anyway.

I spent a little time last week trying to update the numbers that I set out in this old post. These are the same numbers that made me shelve the store idea last year. What little I found is not encouraging.

Putting the Numb in Numbers

Rent should run about $20 per square foot -- $3,000 per month for a 1,500 ft store. I found some current local listings ranging from $14 for a ratty looking building in Quincy up to $26 for a primo space opposite the new Weymouth Landing train station. Rent in an anonymous new retail building in the unappealing town of Holbrook is $18. So the $20 ballpark number I’ve been using all along still looks solid.

Without paying for proprietary reports or subscriptions, I could not find specific, locally relevant statistics on the other important number: sales per sq ft. Hunting down published numbers confirmed what I found last time. Gift/specialty stores average anywhere from $148-268 per sq ft, depending on location. A new store feeling its way and finding its clientele should strive for the bottom of that range ($150). The 2,500 sq ft median size of such stores is also much larger than the 1,500 sq ft I consider optimal – 2,500 sq ft at $20 per sq ft is a whopping $5,000 per month! My old spreadsheet breaks even at $185 per sq ft at 2,000 sq ft (annual sales of $370,000) – not impossible, but not very reassuring, either. And that assumes that I either have only one part-time employee for two months out of the year, or I work without any salary for myself to afford more help.

So a few hours of research just confirmed what I discovered last time. I still can’t figure out how a store affords rent, payroll, and debt service without achieving daunting sales expectations. And I will not open a store until I’m confident in its chances of success. I’ll probably have to cough up some bucks for solid local sales data before I can settle this.

As I’ve said before, there are lots of stores in the world. They do alright, so there has to be something wrong with my assumptions or calculations. I’m going to dig up the old spreadsheet and see if half a year’s additional experience has brought any insights since the last time I went over it. But before I jump down that rabbit hole again, here’s a new thought.

Happy Whatever Day

Curio City’s dependence on Christmas is its biggest weakness. Business is slow at best for nine months. It revives in October, climbs fast through November and reaches a frenzy in December. Those two intense months force me to grow beyond a one-man, home-based business. Yet, during the other 10 slow months, I can’t afford the infrastructure that I need to support the two busy ones. This is just the same old conundrum again. All retailers face the same pattern. Why is it particularly daunting for me?

Two reasons.

First, I eschew the Hallmark holidays. After the 900-pound gorilla of Christmas, Mothers Day and Valentines Day are the high points of the retail calendar, and I do almost nothing to take advantage of those. (Fathers Day, St Patricks Day, and Halloween are all bigger than either of those for me). I don’t want to carry kitschy cliché stuff emblazoned with “mom” or red hearts and sappy sentiments. Yet, that’s what the masses expect and buy. Also, pay-per-click advertising for generic holiday keywords (e.g., “Valentines Day gift ideas”, “gifts for mom”, etc) is prohibitively expensive. I pulled the plug on my generic Valentines ads this year when mainstream retailers bid the price well above 30 cents per click. My usual ceiling is 20 cents, and I try to stay below 15 cents for most of my words. I’m already spending nearly 10% of gross on PPC ads. In retrospect, I probably should have rewritten the ads for some of my product-specific keywords to include a Valentines Day reference.

Exploiting minor holidays and everyday gift-giving occasions (weddings, graduations, retirement, etc) would smooth out the year somewhat. I have to learn how to do that without giving in to garbage merchandise and cheapening the Curio City concept. This might be much easier to do in a store than online, since offline advertising costs don’t fluctuate with the holidays. Still, if you advertise crap for your sweetie, you’d better be prepared to deliver pink hearts. My ads would have to address that somehow.

Second, I need to escape the “gift shop” trap. I deliberately didn’t use the word “gifts” in my business name. “Gift shop” sets up many expectations that I don’t want to meet. Gift shops are tacky and frivolous and predictable. You don’t go to a gift shop to buy something for yourself. Should I start by junking my “Curious Gifts for Curious People” slogan? Maybe I can come up with something better before I reorder business cards again.

My real problem is not slogans, though. It’s that I sell little or nothing that people actually need. And this is where Anne’s hobby could come into play.

Could the Wife Be Right?

Artist Trading Cards are not the same thing as “scrapbooking”, but they use many of the same supplies. Expensive supplies. Difficult-to-find supplies. In case you didn’t click my links, here’s what Wiki says about the business of scrapbooking:

In the late 1990s, many scrappers in the US opened stores to turn their hobby into a business. Within approximately 5 years, many of those stores were forced to close due to a downturn in the economy and the fact that many store owners mistakenly assumed that loving to scrap was enough to run a retail store. Many owners simply didn't know how to run their stores. During this time, more multi-level direct sales companies were formed. Several were closed due to mismanagement, while others weathered the tough times. It also gave rise to a new breed of business - the home-based retailer. Companies arrived to provide information for individuals who wanted to break out of the direct sales mold and go out on their own. While vendors had traditionally stayed away from the home-based market due to fraud, they began to warm to the idea of the non-traditional sales channels as a way to get their products in front of more consumers through home parties and workshops. Working with a company like this enabled them to tap into legitimate home-based retailers.

The scrapbooking industry doubled in size between 2001 and 2004 to $2.5 billion with over 1,600 companies creating scrapbooking products by 2003. Creative Memories, a home-based retailer of scrapbooking supplies founded in 1987, saw $425 million in retail sales in 2004. This hobby has in the US surpassed golf in popularity: one in four households has someone playing golf; one in three has someone involved in scrapbooking.

In other words, Anne might be on to something. Maybe that "extra" space isn't entirely a luxury after all :)

Scrappers make glorified baby books about memorabilia and family history. Their output is crafty and sentimental. But they do love to buy supplies, as the Wiki points out. And those supplies are just unusual enough to mesh with Curio City’s bigger concept.

ATC artists are on a higher plane. They subsist on scraps from the scrappers. ATC artists possess the art knowledge and the ambition to rise above crafty sentimentality. They are probably richer and better educated than scrappers, and they resent plowing through all the tacky garbage on the market as much as I deplore the necessity of carrying it.

There might be a business opportunity here for somebody with both ATC knowledge (Anne) and retail savvy (me). Maybe this is the year-round business that could sustain Curio City during the lean months. Maybe fixtures and merchandise get moved aside at closing time…tables and chairs get deployed…and Anne teaches her ATC class to a group of ladies clamoring to buy overpriced supplies. She already has an ever-growing audience.

Possible drawbacks: ATC artists are a much smaller population than scrappers, and (according to Wiki) their hobby has only existed for about 10 years. What if the fad dies out? I have no knowledge of, or interest in, any of this. I’d have to rely on the chronically-overscheduled Anne to drive every aspect of that business.

While this is an intriguing approach to my core conundrum, it’s too iffy to bet the company on. I still need to make Curio City add up without it. If I do go with a store, though, I’ll shop for space and fixtures with this capability in mind. At the very least, I can sell tools and supplies over the web (but again, I need Anne for that).

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So…how’s it going? Last year, this would’ve been one of the slowest weeks of the year had I not unexpectedly sold $900 worth of E-luminators for a high school dance. My very ambitious goal for this February, barring another miracle sale, is simply to equal LY. That would effectively be a $900 year-over-year increase, which is pretty good for a slow month. If Panther comes through with those 4-LED caps as scheduled, I might have a chance. My biggest constraint right now is an OTB stubbornly stuck more than $2,100 in the red, preventing me from bringing in any new products.

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Finally, I want to thank the 53 readers who clicked on a Google ad during the past two years. Thanks to your support, I just qualified for my first Google AdSense payment: $30.27, baby! W00t! The rest of you know what to do.

I'm the Decider

Sometimes I wish I had an ordinary soul-sucking job with a reliable paycheck, defined hours, benefits, paid time off, a retirement plan, and all those good gilded-cage trappings. A job that I don’t have to think about. A job with a boss who would just tell me what to do.

As a business owner and sole employee, I have to make all of the decisions, big and small, with only my wife’s opinions (as valuable and valued as they are, she’s hardly disinterested) as input. Then I have to implement those decisions by myself. My thought process is not moving forward in concert with my self-imposed deadline for making this bet-the-company decision. I’m keenly aware of the calendar pages turning. The first of my three business startup certificates of deposit matures next week -- I need to either reinvest or spend that money pretty soon. How can I think harder? Writing these posts is the only technique I know for examining my own plodding mind.

Given my ‘druthers, I’d continue with Steady As She Goes through the end of this year. That would let me delay the offsite space problem for one more Xmas season while continuing to build my cashflow. I could then ramp up Curio Metropolis early in 2009, and I’d probably have enough money coming in to rent space by the time Fall sales overwhelm me. The main challenge to my web business is becoming more logistical than sales-oriented. I just can’t handle greatly increased business with my present setup.

Unless my physical facility generates revenue (meaning a store? Or is there some other way to do that?), I can’t afford year-round rent when I really only need the space for 2-3 months. There has got to be a creative solution that I’m not seeing. Maybe the very idea of owning and warehousing my own merchandise is wrong. Maybe I need to rely much more heavily on dropshippers, or find some other way to outsource order fulfillment. Maybe one can rent space seasonally, and move in and out of it as needed. That would probably create a bigger logistics nightmare than it solves. Somebody tell me what to do!

Seeing the Future

Without a conceptual breakthrough, opening a store feels as inevitable as Hillary Clinton – something unpleasant that you just have to accept. My crystal ball shows this: Steady As She Goes from March through May, working the minimum required 2-3 hours per day to maintain the web business while designing my store’s content and organization, researching the local retail scene, writing a business plan, investigating POS systems and fixtures, investigating advertising, figuring out how to mesh the store and web accounting, looking at security systems, designing signage, etc. – the details are endless and intimidating.

I need to refine my concept. Do I still carry useful but mundane objects like popcorn poppers and wine corks and ceramic tiles? These slow-selling remnants of my original scattergun merchandise assortment seem to have no place in Curio City's emerging personality. Should I focus hard on the unusual gadget-novelty type stuff? Is there enough of that to sustain a store, and does it sell well enough? Shoppers need to unconsciously grasp the concept as soon as they walk in the door – my merchandise selection and presentation have to make a deliberate impression. Simply plopping the website merchandise on shelves is not going to cut it. Yet I don't want to look like Newbury Comics or Spencer Gifts or The Sharper Image or that other trendy store in the mall, whatever it's called.

I would need to stop planning and begin realizing Curio City Offline by June. I don’t know yet what tasks are required of me, or in what order, or how to achieve them, or how much time they will take. That ought to become obvious as I go. I'm sure that the two biggest hurdles would be obtaining financing and finding a location. I’d need to sign a lease by late August, spend 3-4 weeks in September configuring the space (paint, wiring, lighting, carpeting, fixtures, signage, security…), spend October filling it with merchandise and seeking an employee, and then open by Halloween to get the kinks out by Thanksgiving. Until it’s bringing in money, a business can only burn investment capital to make loan payments and pay rent. A tremendous amount of progress has to happen in a very short time to minimize that deadly interval when the bills are coming and the sales are not.

Somebody tell me what to do!

The Same Old Hurdles

There are a couple of deal breakers that I have to address right up front (maybe this is what I should be working on right now). Even if I am personally stuck covering 75% of the store’s operating hours, I must have at least one part-time employee who can relieve me. As far as I’m concerned, if I can’t afford a small payroll, I can’t afford a store. I am also unwilling to work without pay for any length of time, although it will almost certainly become necessary during the fallow months. And I still can’t make my spreadsheet forecasts break even until sales reach over $400,000 per year, or 10 times what the web brought in last year. That's totally unrealistic.

I would have to suspend Curio City Online when I begin the store opening process. I simply can’t run two businesses at once. Hopefully this hiatus wouldn’t last more than a few months. I’d have to abandon my 2008 web sales goals, which is a bitter pill after the year’s encouraging start. As soon as the store opens, I’d resume my PPC advertising and hope that Curio City Online can pick up where it left off. I’d need the web sales give me some pittance to live on, since a store can't pay me anything outside of November and December. (Even during those months, my part-time, minimum-wage employee will be making more than I do).

Once the store survives its first Christmas, I could try to ramp up Curio Metropolis Online -- if I'm not permanently chained to a cash register, that is. Unless I’m in a high-rent or touristy area, store sales will not even begin to approach costs from January through October. I would have to focus on online business again when the store isn’t pulling its weight.

Thinking is hard. Somebody tell me what to do!

January’s sales streak ended with January, and February is starting out grim. My paycheck has fallen back to $50 per week again – before taxes. I blame Valentines Day. People are buying chocolates, flowers, tacky heart-shaped junk and frilly underthings. I did sell a few Valentine things , but my heart just isn’t in that type of merchandise. If I’m right about this, sales should recover somewhat during the second half of the month…and I’m still hoping that pent-up demand for 4-LED caps will pull February out of the crapper.

Boiling It Down

Today I’ll boil down the salient points of my past few posts into an easily digested bullet list. Maybe the process will help me decide.

But first, a status update: January’s stellar business destroyed every non-holiday month that has come before. That’s due almost entirely to lighted caps. If Panther Vision had been able to resupply me with my best-selling and most expensive 4-LED camouflage cap, January would have actually rivaled November’s sales! Astonishing. I’m beginning the year with black ink and looking at the prospect of a significant profit. There is no way I can spin that into bad news. :)

A single $900 sale made February the strongest non-Christmas month of 2007, so the drama is unlikely to go on. I will be content to equal LY’s sales and preserve January’s margin of surplus.

My chronically depleted open-to-buy is not keeping up with my needs. Including several large backorders, I’m over $2,400 in the red again – and that’s after arbitrarily wiping out 2007’s deficit at the beginning of this year. My new-product wishlist keeps getting longer as I struggle to keep replacing the merchandise that I’m selling. I’m not sure what to do about this; my simple and straightforward OTB calculation is not amenable to change. For now, I’m just running up red ink, knowing that the bills for some existing orders won’t hit until March. As I like to say, “I cannot sell what I do not have”. But I have to be very careful. This sales surge could end at any moment. There’s supposed to be a recession on, remember?

Now on to the digest:

Curio Metropolis Online

Pros:

• Low overhead relative to owning a store.
• Likelihood of rapid growth when a small number of known problems (SEO, developer support, marketing & advertising) are overcome
• Feasible with my remaining startup cash – debt is probably unnecessary
• Although the workload would grow heavy, I’d retain control over my schedule

Cons:

• I can’t handle a tenfold increase in the workload by myself, especially during the two holiday months
• I can’t hire help while Curio City remains in my home
• My home is inadequate for greatly increased shipping/receiving and storage
• I can’t afford to rent space without much higher sales; 10 months out of the year, sales don’t justify renting space.
• Relies heavily on outside expertise: Web development and marketing.
• Steep learning curve and ongoing investment costs to keep pace with ever-evolving “web 2.0” technologies

SUMMARY: I am most concerned about being at the mercy of outside experts, whom I’ve had no luck finding up to now and who tend to be unreliable and/or unaccountable anyway. I can’t physically handle a large, rapid increase in business by myself. It’s very difficult to justify the expense of renting commercial space when it’s only crucial for a few weeks out of the year. Finding appropriate space near my home is likely to be very difficult. Commercial space that contributes no additional business (as would a store) – space that’s purely a major new cost – is a tremendous hurdle to overcome. There must be some creative way around this that I'm simply not seeing.

Steady As She Goes

Pros:

• Lowest overhead of all.
• Requires only incremental tech improvements and new knowledge
• Postpones the need to move into commercial space, perhaps until the cashflow can support it
• No hired help required
• Little or no further investment necessary; builds upon existing cashflow
• Lowest risk – January’s sales exceeded the benchmark 50% growth
• This option best suits my personal preferences and lifestyle

Cons:

• Lowest potential reward. Even using optimistic assumptions, it will take at least several years before I’m paying my share of the bills again
• Merely postpones, rather than solves, the main challenges posed by Curio Metropolis
• Given the limits imposed by my physical facilities, keeping up with even a mere 50% sales increase will be extremely difficult during November and December

SUMMARY: Low cost and low risk are very appealing. I had planned for a 25% increase from 2007 to 2008. Doubling that to fifty percent would be a huge success. Sales so far this year are running 150% ahead of LY. That's a powerful argument for Steady As She Goes. I already know what I need to do to maintain or accelerate that increase, if not how to actually accomplish it. During the slowest months, I have the freedom to run errands, do chores, tend my garden, do the marketing, cook the meals, and generally be a good housewife. Arranging a vacation is not a huge problem. Even when the Halloween-to-New Years stretch compels me to work a lot more than 40 hours a week, I retain some control over my workday. I like the idea of spending little or none of my remaining savings, and letting Curio City pay its own freight instead; I never thought that would be possible this soon. This is the approach that I want to take. But I worry that my natural caution, fear of change, and plain old inertia are holding me back. Even with the dramatic percentage growth that I’m enjoying right now, the dollars involved remain small – maybe too little to justify the required effort (although a hefty year-end profit and shareholder loan repayment could change that calculation). The plodding approach that has gotten me this far can probably carry me much farther… but slowly, and I will ultimately encounter the same growth-related challenges as Curio Metropolis would face right away.

Curio City Offline

Pros:

• Gets Curio City out of my house; easy to employ help
• Best potential for dramatic sales and personal income growth
• Long-term growth and expansion path is well defined
• Easy learning curve
• Easiest to finance
• Less competitive than online retail; easier to define and defend a niche (despite living in a retail Mecca, there is no similar store nearby)
• Cash-and-carry is much less work than shipping every sale

Cons:

• Highest fixed and operating costs; will require substantial debt
• Highest risk of rapid and unrecoverable failure
• My forecasts just don't add up: Rent, payroll, utilities, insurance, and debt payments? How can that work? I need revenue of $400,000+ to cover all of that, and that's twice what a small store in a secondary location can deliver
• Might require more effort than I am capable of handling alone
• Completely monopolizes my time and attention, probably for years; significant hit to quality of life. No vacations, no garden, no housewifery
• Web business will definitely suffer from inattention
• Dealing face-to-face with the public and their children
• Significantly more returns, damages, theft
• Not how I want to spend my days – I just plain don’t like stores

SUMMARY: Every time I think about this, I immediately ponder how I can get myself away from the cash register – I need to work at a higher level than that, and I am not temperamentally suited to sitting in a public space all day, every day. So I’d need help right from the start. Yet, far from being able to afford hired help, a new store often can’t even pay its owner anything for the first year or two. Is opening a store that I don’t want to run myself a stupid idea? I think of it primarily as a base for web operations (where the real growth potential ultimately lies, and where I am already earning a profit). Although owning a mature store with routine operations and reliable staff several years from now is beguiling, getting from here to there will be a frightful amount of work and expense. Most people who do this have a partner. During the holidays running Curio City Online is already more than a fulltime job. How can I possibly do that and open and operate a store, too? And finally, there is no chance that I can spare the necessary time and attention for pre-opening while also maintaining my existing web business. I don’t see any way around putting the website on life support while I turn my energy elsewhere. Walking away from a profitable and growing business strikes me as a foolish idea, even if it’s only for a few months.

CONCLUSION: If I had one, it would go here. Next week, I’ll see if I can find better numbers and revisit my budget forecasts for the umpteenth time.