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Succession Planning Critical For Independent Retailers

One of the most critical issues facing independent CE and major appliance retailers, and, indirectly, manufacturers and distributors, is something that has all the appeal of doing your taxes or preparing a will – succession planning.

Elly Valas, member services director at the Nationwide Marketing Group, held a succession- planning seminar at its PrimeTime convention last week. She told me just before the show that this issue is “one of the biggest threats to independent retailing today, way bigger than competition or falling margins.”

Nationwide and BrandSource have intensified their efforts to help show retail owners how they can pass along their businesses to family members or sell them to either longtime employees or other interested parties.

I spoke with BrandSource CEO Bob Lawrence, recently who said, “The subject with some of members comes up like this, ‘Oh shoot, we have to do something.’ Really, if we don’t help them there won’t be any independents … or buying groups.”

BrandSource has several approaches for its dealers. It works with young people working at members’ stores, family members or not, to “know they have a resource with us to help them as their career progresses,” Lawrence said.

At the BrandSource convention later this month, the group will provide a succession-planning seminar, and have retailers who have already gone through the process. And the group is working on a plan with a university’s MBA candidates to educate them about running a retail business and recruiting them to take over existing retailers that want to move on.

Nationwide started its NeXt Gen program in 2013, a group of close to 250 younger retailers and vendors. At last week’s PrimeTime convention, they got together for a networking event sponsored by Electrolux to discuss what’s working in their businesses — such as web service tactics, use of info pads at stores, use of social media and the like — which will hopefully reinvigorate their current businesses and help keep their interest in CE/appliance retailing at a high level.

Valas broke down the numbers for me and said that for smaller dealers ($2 million to $10 million in annual sales), the best successors are family members or key employees. But if the current owner is dependent on the business for retirement income, smaller businesses have a tough time making the additional payments to the founder.

Valas suggested getting a credit line or a third-party lease if they are also paying something to the previous owner. It is easier if the founder owns the building, but her view is that such a scenario “is a tough transfer” and the best option may be to sell “to a dealer in the next town or a local competitor.”

For larger retailers with $10 million and more in annual sales, “there is a new current of investors, even private equity, that’s been on the sidelines. With the right management in place, a history of profitability, they have a better chance of being sold,” said Valas, citing Warren Buffett’s investments in R.C. Willey and Nebraska Furniture Mart as two well-known examples.

Lawrence said the biggest challenge in retail succession for this business or any retailer is, “Finding young people who are willing to work 9 a.m. to 9 p.m. six days a week.”

Valas reminded that when a local dealer closes, “that volume does not go to another independent; more often than not, it goes to the nearest box store.”

That is why succession planning is critical for independent retailers – and everyone in the CE and major appliance industries.

Steve Smith is TWICE’s editor at large. He can be contacted directly at [email protected].