Dealer Lab: February means big changes at dealership

Publish Date: 
Apr 30, 2010
By Joe Delmont











Editor’s note: We’ve made a change in our reporting for fiscal 2010. We’ve switched stores. Shenk and a partner agreed to buy the Punta Gorda, Fla., store. The owners sold the Naples store to a separate buyer this year, so we’ll no longer report on that operation.

Dealer Lab is a joint effort between Dealernews and PowerHouse Dealer Services, a consulting firm run by former dealer Bill Shenk, detailing his efforts to return Florida Motorsports to profitability. When he took over management in July 2009, the two-store (Naples and Punta Gorda) network wasn’t in good shape — it lost about $1 million in 2008. Our report covers the good, the bad and the ugly.

February was a month of huge changes at the Punta Gorda store, and those changes are reflected in the financial results of the operation. The store posted a loss of $39,732 on revenue of $121,500. That compares with a January loss of $8,878 on revenues of $278,045. Numbers for the first half of 2009 are not available because of changes in accounting systems prior to Shenk’s involvement last July.

Revenues in February were down because the store was only open half the month as the Naples-Punta Gorda operation was split in two and as Shenk and his partner prepared to purchase the store in Punta Gorda.

While revenues were down because the store was closed, expenses remained high. Revenues dropped almost $157,000, but expenses were down only about $20,000. Flooring remained high ($15,608 vs. $14,490) even though inventories dropped from about $2.8 million to $1.6 million. Inventories valued at about $1.2 million were transferred to the Naples operation as part of the store’s sale.

On the positive side, inventories will be only $1.6 million at the beginning of March and flooring costs will be only about $7,000. And with the inventory properly split between the two stores and the balance sheets adjusted, a major step was completed in finishing the sale of the store to Shenk and his partner.

Payroll remained high because sales people were paid guaranteed minimums and many of the administrative and service people were paid on an hourly basis to help with the inventory transfer and other operations related to the sale.

“We had a substantial payroll even without sales,” Shenk says. “It was a big job to document and do accounting before we could begin moving inventory to Naples. There was a lot of stuff to haul, but it wasn’t just throwing stuff on a truck. First, there was counting, documenting and physical separating to do before we could begin loading the trucks. Second, there was a huge amount of cleanup and reorganizing because all of the inventory that was retained needed to be reset, and third, there was the accounting side of creating solid, accurate ending and starting balance sheets. A lot of people put in a lot of time.”

E-Commerce Helps Reduce Inventories

Shenk used several e-commerce outlets to sell off inventories of current and noncurrent PG&A items as well as units: eBay, Cycle Trader and Craigslist. Each worked for him in a different way, he says.

Shenk admits upfront that he probably didn’t do a very good job with eBay. “Maybe we weren’t using it to its full potential,” he says. “It’s probably [us] not knowing how to use and manage eBay effectively. It’s obviously a tool that moves a lot of merchandise in this world.”

In 2010, for example, he has completed 28 transactions of PG&A items on eBay that have generated revenues of $3,646. The sales cost $429.45 in fees. While the new revenue was welcome, the items were sold at a loss. The cost of the goods was $4,928 and, with normal margins, had a retail value of about $7,000. “Obviously,” Shenk says, “this is not a way to stay in business — selling items for less than you pay for them.”

There were additional, uncounted costs involved in these e-commerce sales as well. There were labor costs in taking photos of the items, uploading the photos to the eBay site and shipping-and-handling costs. “We’re not set up now to track those costs,” Shenk says. “Eventually, we have to track those costs to know what e-commerce actually costs us.”

To preserve labor costs and generate as much revenue as possible, Shenk’s crew picked the oldest inventory and the biggest items that would have the best appeal. They saved the best current items for store customers.

Even though Shenk hasn’t yet made any profit on selling stuff through eBay, he says the experience just shows the value of clearing out old inventory. “A lot of that stuff was sitting here for at least 12 months. Every dealer has stuff like that that he should get rid of,” Shenk says.

He says that it costs on average about 20 percent in handling to sell a PG&A item through e-commerce, including overhead allocations and direct costs in that department. “We’re creating systems to better track those costs,” Shenk says, “and that will help us in determining our profitability in using e-commerce tools.”

Another hidden cost of using the Internet to sell units is the lost revenue — about $500 in F&I and another couple of hundred bucks on the front end. Shenk didn’t sell only PG&A on e-Bay; in 2009, he sold units as well, including a $20,000 boat.

Cycle Trader provided Shenk better opportunities to sell in the local market, Shenk believes. “With eBay,” he says, “I would get calls from other states, but with Trader and Craigslist they were mostly from Florida. The reality was that we were able to get more money and more inquiries out of the local market from Trader. Trader cost less and we were generating more revenue; it’s more like standard classified stuff.”

Shenk also said that eBay required more work, and he seemed to get a lot more lookers. “And, you don’t get a lot of action until you get down to the end. We weren’t prepared to deal with that,” he says. “And if you use the Buy It Now tool, you’re basically setting your minimum price.”

Craigslist and Motorcycle Industry Jobs worked well as hiring tools, Shenk says. “I got a really good response from Motorcycle Jobs,” he says. “But that’s limited to your top jobs, where someone can afford to relocate.”

Next month, we’ll be talking more about selling online through e-commerce, in addition to covering the development of a new store website and a marketing program tied to e-mail address locations.

This story originally appeared in the Dealernews May 2010 issue.