Mattress Firm is the latest retailer to go into bankruptcy and they aren’t alone….there are a few common things you’ll notice about many of the businesses who have gone into bankruptcy over the past few years. When you dig deep many are blaming two main reasons for their struggles. The first is debt. Many times the philosophy for success according to the business owners/leaders is to throw money at it. I see it in real estate agents individual businesses all the time. They have beautiful newspaper/magazine ads wherever you look….they are spending money hand over fist and the perception is, “Wow! They must sell a lot of homes!” In all actuality, many times (not all) the agent or agency is heavy in debt and or expenses. Their expenses far exceed the percentage of monies they should be spending to generate business. These agents/agencies haven’t kept their economic model in check! They are not running a good profit margin and most don’t even know how to watch it. They wait until they file their taxes and then it hits them, like a ton of bricks.
I often wonder why agents say things like, “I’m busy enough” or “I don’t want to sell more” when they don’t understand that by controlling their debt, they can actually MAKE more. They don’t even have to SELL MORE. They don’t understand things like their cost of business….even the commission split they are on. So, what do I mean by that? Well, most agents look at it from a distorted view. They look at their net, not the gross FIRST. Let’s just say they sell a home for $300k and the gross commission is $9,000 and they are on a 70/30 split. They would get $6,300 right? They then focus on the $6,300 and say that’s my income and they start their expenses from that number. Well, why aren’t they looking at the $9,000 and saying that is the gross, let me start from there? What’s wrong with wanting more of the gross? The 30% is actually a business expense, it is a cost of doing business! It can be controlled, negotiated and it SHOULD be looked at. If you had a lease that was being raised and it was getting out of hand, as a business owner, you would negotiate it and or look for alternatives. Why aren’t real estate agents doing the same thing? Because they just don’t know….they are taught to sell real estate, not run a business.
Any of your top agents will tell you, they have expenses just like any other business including marketing. I don’t want them to stop marketing….I’m not suggesting that. What I am saying is they should track it, keep it in check and look at other expenses that can be controlled too.
The second reason many of the businesses are claiming they are filing bankruptcy is the way consumers are doing business has changed and their business model did not change with it. They were behind the curve and before they could do a course recovery, it was to late. According to Mattress Firm, 43% of their stores had another store within a mile of each other! Wow! In a world turning to technology and online shopping they were expanding their storefront footprint and ignoring what the customer was looking for – online shopping, ease and low prices. I’m not one to buy a mattress without going to the store, sitting on it, maybe even laying down for a minute or two on it….so I don’t believe that doing away with their stores was the answer. I think slimming it down, being more effective, efficient and maybe attracting the consumer online first may have worked better than leasing more stores. Expanding physically just caused their debt to go up even more.
I have always been willing to drive to get what product I want and I’d do that for a mattress – however, most times, I’m going to look online first. I still want the experience of being able to ask questions, get the knowledge from the sales person and build the relationship with the salesperson or company. That’s ironic! According to NAR, home buyers and sellers are doing the same thing. They still want the relationships, yet the way they are approaching the sale is through technology first. I think, as agents, we should really take a hard look at how we are approaching our businesses. The NAR customer and agency survey this year said that 42% of agencies are claiming that keeping up with technology is the biggest challenge they have. I hate to say it, the writing is on the wall and if agencies don’t have the ability to stay on top of it, they are going to feel the pinch in the very near future. I’ll be following up with an article addressing the technology pinch in a day or so. Check back because I believe what we are seeing will impact all agents and if they aren’t ready, they may be hitting the same obstacles as Mattress Firm….
As always, I’m happy to help agents in their business and if you would like a free consultation or would like to know more of how we can help you, feel free to contact me directly.