With the exception of our most senior Co-op members, most of us are living through the worst financial disaster this country has experienced since the Great Depression. Though the Madison-area has not yet been severely impacted by this financial crisis, the warning signs of looming job losses, dropping property values, home foreclosures and crumbling public infrastructure (wait until the potholes bloom this spring!) are beginning to register in our little piece of paradise. At my kitchen table, we still talk about the mundane activities of the day, but more and more the talk tilts to economic issues: “Sorry kids, no trips to Wally World this year!”
Similarly, your Co-op is spending more and more time talking about the impact these economic times have on Willy Street Co-op’s future. As a caretaker of your investment, we (the Board) constantly monitor key financial measurements and policies to ensure your Co-op not only survives but thrives for many, many years to come.
In normal economic times, we keep our eye on three critical financial figures: sales growth, gross margin and personnel expenses. In economic times such as these, we pay extra special attention to these figures and assess potential changes we need to make.
Sales growth is clearly an excellent indicator of the overall success of your cooperative. The more you buy from the Co-op, the more relevant it is to your needs. While our sales have grown 70% since 2003, growth may soon stall out with our current single location. How many members can we really fit into the store, not to mention the Manhattan-like parking lot situation? So, even in this down economic environment, we continue to examine options for a second store location. The famous banking scion Nathan Rothschild famously said, “Great fortunes are made when cannon balls are flying in the harbor, not when violins are playing the concert hall.” While Willy Street Co-op’s goal is not to make great fortunes, we are currently in a buyers’ market for real estate so we continue to search for suitable sites for a second store.
Gross margin tells us for each dollar of sales how much profit Willy Street Co-op gets to keep. Currently the figure is just a bit over $.35, or in other words, we pay $.65 for every dollar of sales to our farmers/wholesale partners. While this figure is an improvement over previous years, thanks to management’s recent efforts to manage inventory and consolidate supplier relationships, it will be hard for management to move the number to a more favorable position in the near term.
Personnel expenses tell us for each dollar of sales how much we pay in wages and salaries to Willy Street Co-op staff to keep the well-oiled co-op machine humming. This fiscal year we are projecting just shy of $.25. Our continued investments in information technology and staff training aim to increase the productivity of an already super staff. Still, given our important policy to pay Willy Street Co-op staffers a living wage (and benefits), this number, too, is a difficult one to manage to a lower level.
So, if you’ve followed my math, for every $1 in sales we pay about $.90 to our suppliers and staff. That leftover dime then goes to such critical items as building upkeep, income taxes, marketing and paying the heating bill. At the end of the day, our precious little dime gets further whittled down to a little less than half a penny of profit which is then reinvested back to the future growth of Willy Street Co-op. The margin of error is quite small, especially considering that the key drivers of our business model (sales, margin and personnel expenses) are going to be really difficult to move given the current situation. So, over the next several months, the Board will focus on creative policy decisions which encourage sales growth and expense remediation. The decisions we aspire to make will focus on the long-term health of Willy Street Co-op. Much like my family’s kitchen table discussions, some of the decisions may be temporarily unpopular, but in the long run are in the best interest of your Co-op.