Last Updated May 11, 2011 3:41 PM EDT
By Kathryn Hawkins
Welcome to Ask the Experts, where we feature business owners facing problems they don't know how to solve. Want advice on your own dilemma? Email us: ownersonly(at)bnet(dot)com.
The owner: Edward Hechter
The business: Hechter owns PartyPail.com and five other e-commerce sites -- all based in Enumclaw, Wash. -- that sell party decorations and favors for milestone events like birthdays, baptisms, and baby showers. He acquired the business in 2006, when the failing company was making just one or two sales each day.
Annual revenue: More than $3 million
The problem: Although the company has grown exponentially since Hechter took it over, sales for all six sites always slow down to a crawl from October to December. "Quarter four is down about 34% compared to quarter three," says Hechter. December is the worst of all: "At the peak of the holiday shopping season, we're down by almost 60%."
Although they could capitalize on the holiday market by selling seasonal decorations and party favors, "our business model is to stay away from seasonal products because you run into inventory risks," says Hechter. "You never know if you'll be able to sell all of the product in the space of just two months."
The company has 24 employees and overhead costs including office and warehouse space, Internet hosting, salaries, utilities, professional consulting fees and insurance, which total approximately $70,000 a month, regardless of how many products they're selling. "We squirrel away cash to make sure we have enough to carry us during those slow months," says Hechter.
These high overhead costs make it difficult to deal with the annual downturn, but Hechter tries to make the most of the slow period by using it as an opportunity to focus on making improvements to the business, both through business development and physical renovations to their office space. Ideally, though, Hechter hopes to find a way to boost sales during the holiday season. "We'd love to find a complementary business opportunity that would help us gain more traction in those months," he says.
What the experts said:
Michael Hess, CEO, Skooba Design
Sell gift cards. Gift cards are a billion-dollar industry, with a huge peak in Q4. Edward, if you create a variety of graphics for gift cards, and present them as beautifully as your other products online, it would not only be a natural hedge to your seasonal business, but also a great cash flow front-loader (you sell the card long before you incur the cost of goods).
Try creative vendor partnerships. Rather than take on the inventory risk, for the volatile holiday season scout out vendors who drop-ship, and send them orders to ship on your behalf, with your label and packing list on the boxes. Alternatively, find vendors who are eager enough for your business to work with you on stock balancing, guaranteed sale, and/or markdown allowances. If you do pick up some inventory, keep the breadth of items limited, make sure to under-plan (better to run out on December 15th than to be stocked to the gills on December 26th), and markdown remaining stock aggressively the moment the peak ends. You'll take a margin hit, but hopefully it averages out, and you have some cash to cover overhead in the slow period.
Give extra visibility to "generic" items by highlighting any existing products that cross over to holiday use (like the items in your "shop by color" section: anything red, silver, green, white, etc.)
Rex Frieberger, Co-founder, Highly Relevant
Rethink your ban on seasonal items. First, see if your competitors are selling seasonal products. If they are and they're doing well, you could be missing a huge opportunity. Use Keyword Spy (a paid service) to see if they are buying Adwords for these terms. If they are, then you will want to further investigate. Next, check the search volume for these keywords using the Google Adwords Keyword Tool, paying particular attention to the months October through December.
Expand your social media marketing. If you believe seasonal products are still too risky, then go social. Hold contests and sweepstakes to increase your number of fans on Facebook and Twitter. Wild Fire and Offer Pop are two services to try that can create an engaging experience. But before you do that, you need a steadier flow of content on your social media profiles. Get a daily routine going for updates using tools like Hootsuite to partially automate the process.
Readers, what would you do? Share your tips in the comments.