January 22, 2023
As predictably as its cold, dark days, January brings business closings.
This month is no exception, and they are among my least favorite interviews.
But conversations are important. So when I heard that Tami Lien was closing Stride Rite after 35 years in Sioux Falls, I knew she deserved recognition and that we as a business community needed to know what made her close the doors.
“That’s just everything,” she told me in an emotional, honest conversation.
“I can’t go into debt because I love what I do and I can’t leave.”
By “everything”, she really means everything. It was, of course, the pandemic, which essentially shut down business overnight. Then there was a supply chain disruption, causing her to wait more than 10 months for the shoes to arrive.
Of course, it faces the same staffing challenges and rising overhead costs as everyone else.
But she’s also increasingly unable to compete with cheaper e-commerce options and shoppers browsing her store just to buy online.
“Honestly, this is not a joke,” she said. “They take advantage of us … and take the time away from me or my staff to try on all kinds of shoes, and they’ll come in and say they just bought shoes online and leave. I can’t even imagine doing that to someone, but that’s the world today.”
It was a similarly sad conversation with Wendy Haugen, who is closing Kids & Kaboodle Consignment Shop after more than 30 years. Her already small margin could not absorb the escalation in her rent.
“We thought about numbers until the cows came home, and that wasn’t sustainable,” she told me.
The early days of 2023 certainly seem to illustrate the pressure placed on many of us.
Last week’s news that the city’s planned Downtown Unity Bridge brought in a bid well over budget should come as no surprise. I have spoken to many in the public and private sectors who are experiencing the same increases.
Someone commented to me the other day that I paid over $20 for a burger at Downtown Burger Battle. Considering some of the ingredients involved, I wasn’t shocked.
And people will pay for it. Sometimes. They will accept the higher bid because the project is critical. They’ll smoke it and pay more for a plane ticket, a snow blower, or an adult drink.
But eventually, they tend to stop saying yes.
One of my most revealing conversations recently was with Casey Brown, a pricing strategy expert. It’s something we rarely talk about in business and it’s far from science.
But pricing goods or services correctly is critical, and constantly evaluating your pricing approach is essential. I spoke with Brown to promote her upcoming appearance in Sioux Falls at the Prairie Family Business Association’s annual conference.
I understand, I told her, that businesses are forced to raise prices to maintain margins in the face of various external cost escalations. But is it actually possible to increase margin through pricing today?
Not only is it possible, she said, but it is happening.
“Most companies that are best-in-class or better-in-class are actually gaining margin in this time rather than staying neutral because they’re very aggressive in terms of timing, speed and amount they’re willing to ask for inflationary pressures,” Brown told me.
“Companies that are under the most pressure are afraid of damaging customer relationships. The whole world is paying more for every single thing that we buy than we were paying a year, two or five years ago, so I would say that’s an opportunity as the whole world is resetting what the market prices look like to participate in that reset instead of being left behind. Ask for more, go faster, go higher.”
I understand. It makes sense, thinking like a business owner. And I really think there is some opportunistic price gouging at play across the business.
However, the opposite, Brown continued, is what happens when inflation turns into a recession?
“So what do we do if you’re a business owner with constant increased costs because the market is starting to soften and customers are holding cash and becoming more conservative? This may cause the market to shrink for some companies. So this is what I would say is a very surgical and strategic execution of the pricing strategy. Product by product, customer by customer, service by service to stay neutral without losing market share. You have to prepare in a different way for what’s coming, as opposed to what we just went through, where the question wasn’t so much ‘How much does it cost?’ like ‘When can I get it?’”
However, the question becomes “How much does it cost?”
How much does business expansion cost? Do a project? Hire an additional person? Go out to eat? Buy a new car?
What does it even cost to stay in business?
When the grip becomes too strong, the pain becomes real. It’s a natural part of economic cycles, but it feels a bit like it’s getting closer.
The photo I used to illustrate this column is called “Icy Climb,” courtesy of Paul Schiller.
Both the picture and the title seem to correspond to the time.
Fittingly, I spoke with Reggie Kuipers, president of Bender Commercial Real Estates Services, after I had already written much of this column, and he used the same descriptor.
“This is a year of transition,” he said. “We said that for 2021 and 2022, and now they are being squeezed. And once earnings are down, the C-suite makes tough decisions.”
And it’s not just the C-suite. It’s city hall and small business owners and leaders at all levels. The big push in 2023 may just be starting.
Jodi’s diary: We have an icy road ahead of us