M&A Specialist | Advisor | Author | Consultant

The Biggest Lie Operators Tell Themselves

If you have ever heard me speak at NACS or one of the State Association Conventions I have spoken at, you will hear me talk about the 1/3, 1/3, 1/3 rule I learned many years ago when I was operating my stores. Since discovering this rule I have seen it multiple times in my own operations and in others. It still holds true regardless if you are operating 9 or 90 stores.

The 1/3, 1/3, 1/3 rule says that if you are a multi-store operator, generally 1/3 of the stores will be really good that would qualify as what we would call “A” stores. Not necessarily the prettiest stores, but the most profitable stores.

The next 1/3 is what we would call “B” stores. These are stores that were probably once an “A” store and over the years their sales have diminished, because of the neighborhood or additional competition coming into the market place, but overall they are stores to be proud of and they are good solid performing stores to have in your company.

Then there is the last 1/3. These are the stores that are “C” or worse. They are the ones that generally breakeven or struggle to make enough money to pay their way. They generally have the weakest employees and weakest manager. These are the stores that if a fire or flood or tornado came into the area you would love for it to take out one of these stores.

I got reminded of this rule of business most recently when a multi-store operator engaged my company to evaluate their operation with the thought of taking the stores to market. And since this is what I specialize in doing for family owned businesses I relished the opportunity to work with them. I really enjoy working with family owned businesses, because it is great to see how a family has started from owning one or two stores to multiple stores and weathered the many challenges that have faced them over the years.

Well, it just so happens this family owned 9 stores. So my team and I go to work on our analysis of the package and there is was again. 3 great stores that were cash cows. 3 stores that were steady performers and low and behold there were the 3 dog stores where 1 store was actually losing money and the other 2 stores were struggling to cover their costs.

I asked the owner why they kept the 3 stores operating over the years and not close or sell them off or use their properties for an alternative use? I knew what the answer was going to be, but I had to ask. “Oh, I didn’t want to close these stores or sell them because they were covering the overhead and if these stores were not there I would have to allocate more overhead to the other 6 stores.”

This my friend is the biggest lie you can ever tell yourself. In the short term you may have covered some corporate overhead, but you have just set yourself up for some of the biggest liabilities of your business career, but most of all you have either been inept or lazy by shirking your duty to your family or other shareholders of your company by not addressing these underperforming stores.

This may sound harsh, but it is the truth. Your job as the CEO or President of your company regardless whether it is a 9 store family run business or a 90 store corporate run operation is to generate the highest amount of profits on the minimal amount of investment by the company. Period! You are here to make a profit and if you are not capable of doing this, then you should be replaced by someone who is more willing or more capable.

Operating underperforming is not only costly, but they are a huge liability to you and your company. All of your stores are exposed to the public, which means each is exposed to the possibility of a slip & fall by a customer, which could generate a lawsuit. Each store has employees, which is more exposure to possible claims not only by an employee, but by claims from a customer due to negligence by an employee. And one of the biggest stealers of an underperforming store is the “lost opportunity cost” of other opportunities where you could have invested your time and money to increase your company’s profits.

Some advice was given to me when I was operating about 100 stores and I thought I was a big dog in the world of retail. A vendor of mine got my attention one day and said to me “Terry, you need to quit wasting your time trying to make your bad stores good and instead you need to spend your time trying to make your good stores great!” And to this day almost 20 years later I can hear his words ringing in my ears and I knew he was right and how wrong I had been by running around thinking I was improving my operations when all I was doing was exposing my company and my family to the possibility of more grief and less profits.

So I end by asking, pleading, and begging; please don’t be the one who keeps these underperforming stores in your ownership and act is if they are not there. Instead take the needed action and get them off the books and do what you do best and that is to make more winners out of the stores you presently operate and continue to grow your company to new heights.


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