Red Zebra Business Centre - Management Memos
May 2012 Making Measurably More For Your Business Since 1985! Page 1
Time to think about on-line trading!


ver the next few months, Management memos will be focussing on the changes in the retail market space that leads to on-line shopping - and on-line trading more generally. Not share trading, of course, that's not our scene. But trading in various forms of goods - both in B2C and B2B situations.

Now is the time to build the future
With sales racing along the way they used to, it's time to plan for the future! In reality, your sales are less than they should be, because on-line sales are happening - and growing. You need to respond to this development, don't you? So just now, when there is some money around to build for the future, it's the right time to get serious!

Web sales not a "quick fix"
Web selling is not a 'quick fix' for anything. It's not like taking out an ad somewhere. It will not generate a whole heap of instant sales. No, it's about building a retail business that prospers in this new generation of retailing.

New shops ready to join My Local Pool Shop
Three new shops are nearing completion. Couldn't be finalised before Christmas because there were too many water tests to be done - so the product lists have not been finalised in-store. Completion due in January.

Retailers told: go online, or wither on vine
Some important comments noted in the Melbourne Age after the annual KPMG Couta Boat Classic, at which business leaders gather for a boat race from Sorrento to Portsea and back, followed by a networking session ....

'Former Target chief executive Launa Inman said that despite a tough year for retailers, online retailers had just enjoyed a ''phenomenal'' Christmas. ''I think that every retailer really needs to expedite their online, because that will be the saving grace,'' she said.

The chairman of NBN Co, Harrison Young, said the internet, 'particularly when delivered over high-speed broadband', was transforming business.

'Everybody who's a middleman and has had a business model based on being a middleman is affected by a new thing that eliminates the middleman.'

Powerful stuff. Think about it! Every pool shop is a "middleman". Building a pool shop that can live in this new world is not a matter of chance. It's a matter of change!

Federal Budget Creates Need for Careful Business Planning

With the federal budget about to brought down tomorrow, we are caught in the middle of a polished, sophisticated, and highly effective PR program. Good News is flowing thick and fast, with benefits being announced for school kids and small business. Look beyond the spin!

Also see the severe contraction that confronts us.

The 'going in' position for the Government is that it will produce a surplus in this year's budget, by doing whatever it takes. The 'going in' position for us is that the Australian economy is split in two, and needs different strokes for different folks! Economists all accept that we'll  be going backwards. The only point of discussion is how far, and how fast!

Note the underlying data shown in the next column:

  1. Unemployment levels provide a good guide to the general levels of market activity. Australian unemployment is hovering healthily just above 5%. But it varies widely, and your best approach to business planning will depend on your local circumstances.
  2. For Victoria, there has been a dramatic worsening in unemployment in recent months, and it now stands officially at 5.8%. A recent study by economists at NAB suggests that the real unemployment in Victoria is between 6.8% and 7.2%. This is almost as bad as the the worst of the Hawke-Keating era, and at the levels of some regions of Australia in the GFC period. Back in 2008-08, it seemed as if business had slowed almost to a stand-still In those places.
  3. Tasmania is worse than Victoria, while NSW and South Australia are better off.
  4. Queensland, Northern Territory and Western Australia are much better off, with some regions in WA reporting unemployment at 2.6% - representing 'over-employment', high wage costs, and typical of a boom economy.
  5. This federal budget is set to strip 2.6% of GDP out of the economy. That is almost a full year's growth. The government is deliberately contracting the economy to cap the northern boom in mining and gas.
  6. In 2012-13, 9% of Australia's GDP will go to mining investment in WA. While much of the money will come from imported capital, this distortion of the market is unprecedented, and its effects are unknown. At least we can be sure that there will little room for growth elsewhere in the Australian economy.
  7. 50% of the GDP of WA is generated from mining investment. This suggests that when the new mine and gas projects commencing in 2012-13 are complete, there will be a notable contraction in the WA economy.
  8. These points can be summarised as a likely three years of controlled boom growth in the mining states, with at least three years of difficult to very difficult business conditions (similar to the GFC environment) in the non-mining states.

In general, the experience was that:
  • Businesses that did no marketing, or did badly what they did, lost up to 30% of sales
  • Businesses that did not do much marketing, or didn't do it well, lost as much as 20% of sales
  • Strong businesses that did a whole lot of good and effective marketing kept sales drops less than 5%.

In brief, this suggests that for the non-mining states, the level of market activity could reach levels 20% lower than your recent experience and expectation, and you need to be able to sustain your enterprise for three years at that level. This is not an assertion that things will get that bad - but it is a strong indicator of what must be done to ensure survival if things I get that bad.

In the mining states, there will be a strong market and rising prices. However, there is always a tendency to allow costs to build up over such a period.

In other words, plan to be aggressive in the market and take all the market share you possibly can - all the time keeping an iron grip on your expense ratio. As sales grow, your expense ratio should drop. Make sure it does.

In non-mining states, plan to reduce your break-even point by 20%. That way you will be adequately protected if things do get really bad.

Similarly, reduce your stock holding by 20%. Seriously! It will improve your investment return if things go well, and protect you from cash difficulties if they go badly.

Preparing your business plan for 2012-13 on this basis will make you more secure whatever level of business we see develop. It will help you fend off the worst what this budget might have in store. Our budgeting for your next financial year will be predicated on these bases

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McNicol Williams Management & Marketing Services is a Small Business Advisor listed with the Small Business Victoria, and has presented The Red Zebra program under its auspices. This listing requires that the first hour's consultation is always free. So when we say "No charge or obligation", we mean it!

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