Recession Strategy: Survive and Then Thrive

You[re probably sick and tired of hearing about the ongoing economic crisis. Yes, times are tough and businesses are hurting — but what, exactly, are custom apparel decorators supposed to do about it?

It’s not as if you can simply pursue new markets, because the economy hasn’t spared any niches — they’ve all been affected. And simply slashing prices is a knee-jerk, short-term solution that ultimately will devalue your services. What, then, is the answer? For our shop, we’re focused on reducing expenses, managing inventory and investing in the future. This way, when the economy eventually bounces back (and it will eventually bounce back), we’ll be positioned for success.

Feeling the Pain

The first signs of economic trouble appeared during the second and third quarters of 2008, when gas prices hit $4, home foreclosures were on the rise, and some of our customers began paying their bills later than usual. By November 2008, the recession started to take a toll on our shop’s gross sales with corporate holiday “Thank you for your business” gift orders going from a considerable amount to literally nothing.

Employees started to feel the fallout from the recession when they didn’t receive December bonus checks, which are based on the previous month’s productivity or profitability. At this point, our entire staff had been stung by the economic crisis and none of us was happy about it, to say the least.

By the first quarter of 2009, we were forced for the first time in company history to work short weeks. Each Wednesday, we determined whether we had enough work to keep us busy on Friday — and unfortunately, we wound up working only two Fridays during February and March. Employees were able to use any available PTO (personal time off) to substitute for those idle Fridays — and, in fact, we encouraged them to do so. By shortening our workweek, we lowered labor costs as well as our utility bills since we weren’t turning on our gas-guzzling dryers during no-work Fridays.

We started watching our consumables a lot more closely as well. Typically, we kept up to six months’ worth of ink inventory for some items, recognizing that while the items might sit on the shelf for a long time, we were getting enough of a price-per-unit volume discount to justify the use of our most important tool, money. Now, however, we have shifted to a strategy based on preserving precious cash and have been ordering 30-day supplies of consumables even if we potentially pay a higher price per unit.

One positive outcome of the recession is that our shop has implemented numerous “green” initiatives to reduce expenses. We installed reduced-flow water outlets and also installed sensor light switches in seldom-used areas, which turn lights off and on automatically. One nice additional benefit: Our walls, in the switch plate area, are cleaner because employees, whose hands are often dirty with ink, don’t need to touch the switch to turn the lights on or off.

We’re also considering installing electric hand dryers in the bathrooms. This is a real area of savings when you consider you don’t have to purchase paper hand towels, empty the trash, pay to have it hauled away, etc. You reduce landfill space and labor from here forward, all for the initial investment of a few hundred bucks and pennies per day in electricity.

Difficult Decisions

For the first time in our shop’s history, we’ve laid off some employees. Our state’s laws say that if we lay off an employee due to lack of work, he receives unemployment benefits — and our policy is if we call him back to work within six months, he retains his seniority and PTO. After six months, the layoff becomes a termination, and the individual would have to reapply for a position at our company, should one become available.

It’s possible that during this upcoming winter, several employees who have already been laid off will see their status change to terminated. We also will probably have to lay off several more employees this winter. As our staff gets smaller, we’re all forced to do more than usual; for instance, I’m back on the press, in the screen room and some days answering phones.

Sharing the Pain

We’re still holding semi-regular staff meetings to keep everyone updated and sharing information like payroll percentages. Employees know that in our business model, if payroll is at more than 40 percent of gross sales, the company is losing money and something is going to change.

In order to communicate this to the staff effectively, we maintain a weekly posting in the breakroom that lists the previous week’s payroll percentage as a function of gross sales. At 30 percent or less, we pay a monthly profitability bonus. At 30 percent to 40 percent, we are meeting budget and profit goals. If payroll consumes more than 40 percent of gross, then we are looking at labor cost modifications — shorter workweeks and possible layoffs.

To stay in that profitability zone, we need to generate 25 typical orders each day. Since the downturn started, we are averaging just 17 daily orders of “typical” size. Unless business improves soon, we’ll probably have to lay off as much as one-fourth of our entire staff. This isn’t information that’s pleasant to share, but it’s better to be up front with it in staff meetings rather than leaving them in the dark.

We have invested funds in new digital direct-to-garment technology and we are in the process of implementing that new equipment. Consequently, we maintain an open dialogue with employees about why we’re making investments in new technology while, at the same time, potentially letting people go. We have an opportunity to tell employees, “These purchases are for the long run, and if we just use all of our cash reserves to write payroll checks, then eventually there will be no jobs for any of us.”

Reaching Out

For the first time in a long time we’ve been fairly aggressive in our marketing efforts for contract work from other printers and from promotional products distributors. We started a very successful contract printer boot camp program to introduce them to our shop and, so far, every participant in the camp has turned into a customer.

For the first time, we’re also offering coupons for new customers — free screens or free set-up, for instance. Our marketing to these groups has paid off, with about 10 percent of our business this year coming from first-time customers — a much higher percentage than normal.

We’re spending much less effort going after individual new customers, like the HVAC guy up the street. That size of customer might be worth $400 to $4,000 a year in gross sales, while contract printing for a smaller print shop or for a promotional products distributor could be worth $40,000 a year.

Meanwhile, as other printers unfortunately close their doors, their customers have to go somewhere, and we’re doing what we can to make sure they come to us. We maintain strong relationships with industry suppliers, and when they hear that a printer has gone out of business, they let us know about the opportunity. While this may sound heartless, the reality is that difficult economic times inevitably force the closure of weaker businesses — and smarter, stronger businesses would do well to take advantage of this unfortunate situation.

We’re also working hard on customer service account maintenance — or “babysitting” to put it less politely. We’re providing extraordinary service, taking proactive measures and offering the degree of handholding that we can’t always do when times are great and business is booming.

Looking Ahead

Essentially, you have two choices about how to handle the economic crisis: You can wait it out and hope things get better, or you can be proactive and invest in your people, equipment and facility. Obviously we’ve chosen the latter, looking for ways to trim costs while pursuing new business. We’re even pursuing new decorating options, with some significant investments in new technology.

The economy may even get worse before it gets better, with the first quarter of 2010 promising to be especially painful. Afterwards, we may see a gradual return to economic health, with things returning to normal — or reaching their new normal — by the end of 2010. In the meantime, though, savvy decorators will continue to do everything within their means to stay afloat and position themselves for the future.

• Staff is kept updated on how the company is doing with a weekly poster that indicates the percentage of payroll as a function of gross sales. Any number greater than 40 percent indicates that the company is looking at shorter work weeks and potential layoffs.

• To drum up new business, the company is now inviting other screen printers and promotional products distributors to an educational boot camp that introduces them to the shop and shows them what services are available. So far, every participant has turned into a customer.

• Another proactive strategy being employed to help boost sales is a higher degree of customer service. We are going out of our way to offer support and education to customers that we can’t always do when we’re really busy.

Greg Kitson is founder and president of Mind’s Eye Graphics in Decatur, Ind. For more information or to ask a question, contact Greg at greg@mindseyeg.com or visit mindseyeg.com.

— Nielsen Business Media