Hard or Soft Landing? It’s Time to Perform a Stress Test

Now that one of the longest sales streaks we’re ever recorded has begun to cool, it’s time to prepare for a landing. It could be a soft landing, as we all hope, but it could also be a hard landing. Economists seem to be split on which future awaits us.

Fortunately, we know how to prepare, even for the worst-case scenario, since we’ve been through a few of these hard landings before. You may have heard of banks performing “stress tests” to help uncover vulnerabilities before they become serious liabilities, and this is what we need to do for our retail businesses. Here’s where to start:

Retailer Stress Test

1. First, reevaluate your cash flow based on three possible sales scenarios: sales down by 10%, by 15%, and then 20%.

2. Then project your ending inventory levels against your forecasted inventory for each of these three scenarios.

3. Finally, you need to determine at which level of decrease you need to start cutting expenses.

It’s a good idea to think about which expenses you could cut back on first, while minimizing a reduction in customer service and unique products, since these are the engines of specialty stores.

This way if a worst-case scenario comes up you know exactly how to manage it. Here at Blacks, we are still projecting small, single-digit increases for later this year, but it’s hard to know how future interest rate hikes and banking sector vulnerabilities could affect consumer confidence and employment.

Right now, we see the sales curve flattening and more layoffs appear to be underway. However, the most recent jobs report indicates that a soft landing is more probable.

If you would like our help in performing a “stress test” on your business give us a call. It’s a revealing exercise to do, even if you never need to activate your emergency backup plans.