One of the most
difficult aspects of owning a business is learning how to accept a loss.
And as soon as I learn, I will be certain to explain it.
I do understand the general
concept. Every business takes it in the shorts occasionally, some more
than others. Mistakes are inevitably made, and it is the mark of a
seasoned executive to realize the mistake at the earliest possible moment
and take steps to correct it.
The company that is slow to react
is the company that is left behind as the marketplace changes.
With the big picture I have no
problem. As a retailer, Iíve dumped stores within a few months of
opening, strongly suspecting they were losers. Maybe I was wrong, but I
didnít want to find out. I cut my losses and survived to try again.
Itís the little losses that get to
me; They day-to-day operating decisions where you have to take a loss in
order to realize a future gain Ė thatís not easy to swallow.
The best example is dead merchandise. Iíve
got merchandise that hasnít had a breath of life in over five years. Itís
taking up valuable warehouse space that can be used to backstock fresh,
lively merchandise that actually sells.
So I should close it out,
liquidate the dead stuff. And I will, as soon as someone offers me a fair
price. The problem is that the parasites who will actually take the goods
donít seem to care that Iíll lose money if I sell to them.
For example, I happen to have a
measly supply of 11,000 pair of sunglasses. Thereís little doubt I made
a mistake or two when I bought the sunglasses in Taiwan five years ago.
Some might suggest I bought too many. Others might imply I had no concept
of style. All would be correct.
They cost anywhere from $1 to $2
each, depending on the level of quality, which ranged from low to really
We sold thousands through our
stores and thousands more through some friends who had stores, some of
whom are still speaking to me. But when friends and customers wised up,
there were still 11,000 left.
So it was time to liquidate, and
for five years Iíve had every intention of liquidating. But no one will
give me a fair price.
Just last week I got a call from
a liquidator in Minnesota. When I told him about the sunglasses, he asked
me a few questions and then said the best he could do was 25 cents each.
I was about ready to laugh in his
face when he added that he would need to see samples before committing
himself. I realized he was offering 25 cents because he thought my
sunglasses were still in style. Once he saw them, the offer would surely
drop to 10 cents.
So the pattern continues. I say
"no way" and the sunglasses sit for another few months taking up
valuable space. I refuse to sell them at such a colossal loss. Iím
unalterably convinced an angel will descend and offer me what I paid for
them, since I humbly no longer expect to make a profit.
In fact, Iím thinking of adding
a codicil to my will, instructing my grandchildren to never sell those
11,000 sunglasses at less than their cost. That way I will surely be
buried with them.
While I have a personal interest
in the sunglasses, having bought them myself, other dead merchandise is
slightly easier for me to dissolve. Thatís why I reluctantly agreed when
Ralph, my general manager, suggested we have a warehouse sale for a few
"Great idea," I said
when he explained the details. "What do you think youíll ask for my
sunglasses? How about $3 each."
"No sunglasses," cried
Ralph, holding up his hands. "And another thing, please stay away. I
donít want you anywhere near the warehouse when we hold this sale."
I shrugged. "Fine with me.
Just generate some cash."
Ralph and his managers did just
that. Over a few days he reported sales of almost $13,000.
"Thatís great work!"
I exulted when Ralph reported the figures to me. "I canít believe
you got rid of that much merchandise. Thatís going to certainly help the
old cash flow."
Ralph put his arm on my shoulder.
"The cost was $25,000," he said, as gently as possible.
I gulped a long, hard gulp. It was
clear why Ralph didnít want me around during the sale Ė it would have
been far too painful for me to watch.