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Below, we'll discuss how specialty store owners and small retailers can build a strategy for profiting in the new economic environment. It will require taking a hard look at your sales plan, staffing needs, and inventory in order to streamline your operations. The results will be worth the effort.

Review Your Expected Sales

Forget the headlines that suggest an economic recovery is right around the corner. Now is the time to plan conservatively. Look at your store's sales pattern over the past six months. You will probably notice an initial decline followed by a leveling out period toward the end. Plan your inventory based upon the sales volume you have seen over the past two months.

If customers materialize unexpectedly, work with your vendors to have the items you need delivered quickly. The last thing you want right now is to invest your finite budget into inventory expecting sales that never emerge. Go lean.

Reduce Payroll Carefully

Cutting payroll expenses can be one of the most troublesome areas for independent merchants. As sales and revenue plummet, keeping your staff intact (i.e. hours, wages, number of employees, etc.) can have a devastating impact on profit margins. In fact, many specialty retailers detest the mere thought of letting anyone go, even as their profit vanishes.

To be sure, having employees who are dedicated to helping your customers is invaluable. It is one of the key factors that separates your store from the mass merchandisers. That said, as sales decline, consider your options for reducing your staff expenses. From an across the board reduction in salaries to a slight decrease in hours, think about ways to limit your costs while keeping your best employees on the payroll.

Personalize Your Marketing Toward The Sweet Spot

Every small merchant has a group of loyal customers who have purchased more than other customers. They visit the store more often, they're open to trying new products, and they have proven their devotion by referring their friends and family. These customers can open the door to cultivating a new crop of customers for your store.

Chances are, you have their mailing addresses on file. Brainstorm ideas for reaching out to them in a personal way. Consider scheduling a private demonstration of a new product for a select group of your best customers. Or, send a targeted mail-out to them that invites them to an exclusive sale that you've organized for them. Remember, the chain stores and large discounters normally don't have the same flexibility.

Plan Your Cash Flow For The Year

Cash is always important to local merchants, even when the credit markets are loose. In the current economic environment, cash flow is king. Plan your cash flow needs for the next twelve months. Take into account predictable expenses (inventory, payroll, utilities, taxes, etc.), but don't forget to plan for emergencies. When cash is limited, one unplanned expenditure can be ruinous.

The struggling economy has caused most merchants to tighten their belts and make changes. Unfortunately, many are reacting haphazardly to declining sales and failing to make long-term plans. This is the time to review your sales plan, get rid of excess inventory, reach out to your best customers, and plan your cash flow needs. The effort you put in now can lead to a major advantage over the next few years.