Economic emergency plan paid off for Shades of Light

When Ashton Harrison went to code yellow a year ago this month, employees at her three Shades of Light locations started handling landscaping duties around the stores.

They changed the heating and air-conditioning settings by 2 degrees -- whichever direction would reduce costs.

Overtime was out. A hiring freeze was instituted. And full-time employees were asked to cut their hours.

It was the first stage of a three-pronged plan to address the economy and maintain the health of the Henrico County-based lighting products and rug businesses.

Harrison worked with a business consultant during summer 2008 to devise a response in case of economic emergency.

"I had them in place before all of this hit so we wouldn't panic if things got bad," said Harrison, founder and president of the company, which operates two retail stores, an outlet store, a catalog division and a Web site.

"When I did them, I never really thought I would have to go to them."

Planning can be overrated because it's hard to predict the future, but experts say the exercise of determining cuts and places to reduce costs is worthwhile.

"I would say that's just good business sense," said Matthew W. Rutherford, an associate management professor at Virginia Commonwealth University's School of Business.

"The process and the act of going through what they are going to do turns out to be a great value," Rutherford said. "Tactical planning is something if you don't do you probably won't be involved in business for very long."

Sales have declined as much 30 percent in the past year. But the company is now the healthiest it has ever been because of the cutbacks, which included layoffs.

Bank loans will be paid off soon, and Shades of Light is financially well-positioned when the economy recovers, said Harrison and her husband of 23 years, David, vice president of the firm.

"You have to make unpopular decisions," Ashton Harrison said. "It's not a fun place to be. You have to find the bottom line. You're saving your employees' jobs if you do because if you don't no one is going to have a job."

. . .

The plan consisted of three stages: code yellow, code orange and code red.

"I figured we'd get to (code) red," David Harrison said. He said he thought the downturn in the real estate market would worsen, which could affect their business.

As predicted, the company has been through all three codes -- but it is back to code orange now.

Code yellow was the least intense. Code red was the most. "The step after that is to liquidate the company," Ashton Harrison said.

Each code triggered a list of cuts or changes.

"I can't give you any guarantees in this economy but I can tell you we have a plan," Harrison said she told employees. "It gave them the only security I [could] give them."

The first code went into effect a year ago this month as Wall Street was reeling from bailouts, bankruptcies and takeovers.

The trigger: the stock market dropping by 20 percent and stayed there for two weeks or more. Buying trends at the store tend to wane when investors are wary.

Wages were frozen and hours were reduced. Special-order customers had to pay upfront, and price tags, copy paper and packing supplies were reused.

Code orange hit in January, and red followed two months later.

During both periods, merchandise changes were made to pass savings on to customers.

And rather than mailing out catalogs every six weeks, they cut back substantially on the frequency.

The number sent out in the mail also was reduced. Four million units were cut to 2 million, a big savings when it costs 80 cents to 90 cents to create, print and mail each book, David Harrison said.

. . .

"Small businesses everywhere are having to examine operations to make sure waste is down to zero," said Richard S. Coughlan, senior associate dean of the Robins School of Business at the University of Richmond.

In some cases, Coughlan said, that means reducing head count, operating hours or services offered.

"Every dollar helps," David Harrison said.

The plans "force you to look at what you could cut and what you should cut," Ashton Harrison said. "It gets rid of all luxuries."

As the economy worsened, cuts became more harsh.

"It was not easy to be CEO of a company," Ashton Harrison said. "I had to let go of people who had been very dedicated. We made hard, tough decisions, timely."

Shades of Light had 65 employees before the codes were put into action.

Once code red hit, which lasted from March through September, they employed about 40 workers. Now, the firm has 44 employees.

The cuts were broad -- from middle managers and consultants to warehouse laborers.

But along the way, the Harrisons found some efficiencies they probably will stick with -- such as lower-wattage light bulbs and unplugged lamps rather than a showroom full of electricity-burning products.

Reducing some management layers also meant the Harrisons were dealing more with their front-line staffers.

"My message is no longer filtered through someone else," Ashton Harrison said. "I have found that I like that."

. . .

Employees were told about the stages but not the finite details.

Once a stage hit, no other cuts were implemented until the next stage.

The staged approach can lessen the impact on employees because it gets them ready for what may be coming. "People aren't as shaken up as it happens," Rutherford said.

Keeping people informed also is a good way to foster loyalty during tough times, Coughlan said.

"I think transparency is crucial in these types of institutions because you're going to have to ask your employees to make great sacrifices," he said.

So, too, is morale.

Keeping employees happy or being mindful of morale issues is something business owners should consider, even in tough times.

"You do want to make sure employees are satisfied," Rutherford said.

While cutting, the Harrisons kept or instituted incentive plans.

During code orange, additional bonuses and a contest were created for salespeople. And all employees were eligible for a $100 bonus if they came up with a way to save $10,000 on an annual basis.

Recognizing that ideas come from all levels is a good strategy because confining it to a closed boardroom cuts out employees who may have valuable ideas, Coughlan said.

Honesty is important, too.

"This economy hasn't finished shaking out, so we could go back to code red at any time," David Harrison said.

Contact Emily C. Dooley at (804) 649-6016 or .