Case study: re-opening the Little Shop at Winchelsea

• Why the old business closed
• Taking up the challenge
• Re-opening the business
• The learning curve
• New challenges
• The future

New challenges

Within two months of opening, the shop was burgled. About £3,000 was lost in cash and stock. Some £2,000 was eventually recovered from insurance, but there was also considerable disruption to the business and much extra work was required to deal with the aftermath (eg the insurance claim and police reports) and to clean up the shop.

Following the burglary, security precautions were stepped up. Today, the shop is protected by laminated glass in downstairs windows facing the street, security grilles on rear windows, reinforced external doors with three locks and bolts, a security grille over the front fence and a Red Care alarm. There have been five further attempts to break into the building. None of them succeeded, but a couple of attempts caused considerable disruption and nuisance.

Fortunately, we have not had any serious problems with theft by customers or staff.

In some respects, the Little Shop has been the victim of its own success. There is a tendency to complacency among residents. The more successful the shop appears to be, the less meticulous many customers become about remembering to use the shop rather than picking everything up at a supermarket. We try to address this problem with regular marketing brochures, but we probably need a more permanent reminder. A suggestion has been made that we should have a type of ‘thermometer’ on display outside the shop which shows when the shop is operating below break-even.

An increasing problem for the shop is the burgeoning of official regulation, particularly the removal of thresholds that previously limited the impact of regulations to larger firms. The object of most new regulations is commendable enough in principle but the detail is usually ill thought-out, being drafted by civil servants with an interest in reinforcing bureaucracy and woeful ignorance of the practical consequences of their poorly drafted rules. There is often only nominal public consultation and there is no attempt to phase in the introduction of new laws, which means that businesses get swamped by waves of simultaneous initiatives. Moreover, the government has no means of communicating new regulations to small businesses: without trade magazines like Independent Retail News and Convenience Store, we would never have heard of most new regulations or understand how to deal with them. Among recent regulatory nuisances are the requirement to keep insurance certificates for 40 years, asbestos risk assessments, new fire regulations, changes to employment legislation and the change to off-licensing. Our MP is supremely unconcerned with this problem.

A major burden in running the shop is book-keeping and the related tasks of producing VAT returns. This has been done voluntarily by two residents, which has saved money but takes longer than desirable. We are now considering hiring a book-keeper, although the additional expense will be a serious burden.

Much of the burden of book-keeping could have been avoided with a decent EPOS. This would also have helped enormously with stock management. Unfortunately, we allowed ourselves to be bounced into buying an inflexible DOS-based model by our supplier, CTN, when we would have been better advised to wait until new Windows-based systems became available (a matter of months). Not having a newspaper round to organise, we did not need to have an EPOS installed from day one. Unless data can be copied from an EPOS to a normal computer for processing, they are just over-priced tills.

Small shops suffer from the inefficiency of suppliers. Deliveries are always incomplete or incorrect, lines are too often out of stock, delivery is unreliable, constant attempts are made to dump out-of-date stock on us and there is no redress for problems. The worst supplier is undoubtedly our newspaper wholesaler, T Cox & Sons. As newspaper wholesalers have local monopolies, they are completely unresponsive to complaints about their service. We also have no control over our supplies, while the wholesaler’s ability to predict demand is pathetic. Moreover, the wholesaler regularly dumps unordered magazines on us in order to improve their cashflow (payments are taken by direct debit and we must wait for unordered magazines to be recalled before we are credited). Although the newspaper monopoly is under review by the Office of Fair Trading, it is clear from past reviews that the impact on small shops of the existing system of wholesale distribution and the potential impact of changes to the system are not material considerations for the OFT.

A close second for most inefficient supplier is our local cash-and-carry, Bookers. It is dirty, disorganised and depressing. Their supplies are also erratic and one has to be eagle-eyed for out-of-date stock. It would also appear that the local branch does not receive many of the discounted promotions advertised nationally.

Inefficiency is also the hallmark of our bank, Alliance & Leicester. We switched our account from NatWest to A&L in order to take advantage of cheaper banking and to support the community-owned post office that opened in Winchelsea in 2004 (which offers access to the A&L accounts). The process of opening an account at A&L and switching from NatWest was chaotic. The transfer of our balances was a farce. The online service is clumsy and the call centre is only really capable of answering balance enquiries. No response was received to a formal complaint made to A&L senior management last year, so we eventually complained to the Banking Ombudsman, who secured us a letter of apology and £100 compensation.

The premises in which the shop is located originally included residential accommodation for the shopkeeper. As a community-owned business, with the employees living off-site, we did not need the additional accommodation. Unfortunately, the shop has to pay rent for the whole building and the rent has increased substantially since the shop opened. From about £4,000 per annum before the freehold changed hands, the rent has risen to £7,800 per year. It has been necessary therefore to look for help. This has come from the Winchelsea Community Office, which is a voluntary group that provides community services to Winchelsea. The Community Office rents the former residential accommodation and contributes to the shop’s utility bills.

Broadly speaking, the shop breaks even. We believe the break-even level of turnover is something over £650 a day. Our average daily turnover in 2004 was about £680. However, the gross profit is eroded by waste, exceptional losses and capital expenditures. Waste varies between 1% and 2.5% in retail price terms: our target is 1.25%. In the spring and summer, the shop is clearly profitable, but autumn and winter are a problem. Working balances, which need to be about £4,000 in the winter and over £5,000 in the summer, have been eroded by large expenses for refurbishment and restocking. Constant attention has to be paid therefore to maintaining a positive bank balance by ensuring that stock levels are run down when turnover falls, keeping waste under control and banking frequently.

One problem that impacts on cashflow is credit. The shop has never had a policy of offering credit. A handful of very good customers have been allowed to run accounts, but no one else. We nevertheless found ourselves extending large sums by trying to help individual customers, for example, when they did not have enough cash on them. Inevitably, this help has been abused and it proved very difficult to enforce collection. Staff give credit easily but rarely take responsibility for collecting debts. The taking of credit by staff also became a problem. Delays in collection led some customers to question their debts. In the end, we decided that we could not afford the loss of cashflow or the disputes over repayment, and have tried to stamp out the giving of credit. Our advice to other shops is simple: make it clear from the start that you cannot and will not give any credit whatsoever!

Considerable effort has been put by the Winchelsea Little Shop Association into helping other villages and communities re-open or save their village shops. Often acting in support of Action in Rural Sussex, we have been visited by, made visits to or offered advice by ‘phone and e-mail to groups in Chiddingly, Cumbria, East Dean, Etchingham, Hammersmith, Pett, and Yorkshire.