Digital Storage Inc. saw business decline but Simon Garneau took a line of novelty flash drives and brought some comic relief

Simon Garneau, president, Digital Storage Inc. and Emtec North America

Simon Garneau, president, Digital Storage Inc. and Emtec North America

With the market for computer backup storage devices decreasing about 15 percent a year as far as revenue and number of units sold, Simon Garneau feared that Digital Storage Inc. might soon be one of the many in the technology scrap yard.

“It took us awhile to see that it was declining because obviously all our suppliers were trying to convince us otherwise — that it is growing, and it is exciting,” he says. “Secondly, there are all kinds of competing and advancing technologies that satisfy the demand for more storage.

“So our challenge was what else can we do because if storage devices and distribution are all we do, we will disappear from the surface of the map,” Garneau says.

The parent company, Dexxon Group, which distributed high-capacity tapes for computer backups, decided it was time to diversify rather than to stick with the way things had been. Its response was to establish a division in North America of Emtec, its retail side of storage devices that grew in Europe out of the former BASF brand.

But there was a challenge, and Garneau knew it would be a formidable one.

“The whole strategy was to focus on the retail market of which we knew absolutely nothing,” he says.

“We had no idea how retail worked, how do you introduce these kinds of products to retail, and we were facing very large and well-established competitors: SanDisk, Kingston, Lexar and PNY,” he says.

Garneau was not fazed. His business sense told him that in a competitive market, you have to be different to survive.

Here’s how Garneau, president of Digital Storage Inc. and Emtec North America, built a $75 million successful retail business over the last four years by offering customers something the competition didn’t.

Pitch to a different crowd

If you are a clothing manufacturer and you are searching for the next big thing, it may be as easy as signing a promising designer and going with his or her creations. But Garneau didn’t have the luxury of just adding a new line to the market he was already in.

He was finding himself in the much the same stadium, but he was going to have to pitch to a different crowd.

“Digital Storage had focused on the commercial market, or the B2B as a wholesale distributor,” he says. “Our challenge was to find a growth market for the company because we knew that we could not stay where we were.”

The company started looking for opportunities in the data storage arena because it was a field in which it had familiarity as well as capabilities with logistics and distribution. Emtec would be the company’s own retail brand in North America that was sold through the business-to-consumer sector. An added bonus was that the European division had been marketing flash storage, or key USB flash drives, for a number of years.

Garneau and his team began discussions with existing customers about what Emtec could deliver that other companies would not.

“For instance, doing private labels, modifying their products, packaging it differently and that sort of thing,” he says. “So we decided as a strategy, we said, ‘Well, since we have no brand recognition, we will do for them what the other guys wouldn’t do.’ That was our differentiation strategy.”

The company began creating the novelty type of USB flash drives, with animal characters and popular culture comic icons such as Looney Tunes, Angry Birds and the European Asterix characters.

“Up to that point, most flash keys were totally utilitarian; they were all black or silver, fighting on price and no special attraction,” Garneau says. “But taking the lead from the customers, we decided to do private labels, and we added colors, patterns, schemes, shapes and forms and so forth. That’s really how we got in.

“So we got lucky in that sense and based on the advice of our marketing reps, they gave us good coaching as far as which programs to support with the customers.”

Garneau says that by taking the approach of listening to the customers, being sensitive to what they want, responding, making suggestions, engaging in a working dialogue as opposed to a high-pressure sales pitch — as well as receiving a vote of confidence from the headquarters in Europe — a solid retail effort was launched.

Get off to a good start

Once Garneau and his team had their strategy, it was time to find those who would drive in the revenue. The question then was whether to go in-house with sales associates or outsource the efforts.

“The No. 1 issue was if you don’t know anything about this business, you hire manufacturers’ reps,” he says. “We went with manufacturers’ reps because we felt that they would know the business, we would have the benefit of their contacts, and we could move quicker, if you will, and we only pay once we have sales, so it is not a drain on cash flow.”

Garneau was able to recruit in a short period of time a network of manufacturers’ reps, including one particular standout whose performance was excellent. A major opportunity for a large line review with a large company was obtained, which as luck would have it, already had a relationship with the European division of Emtec.

“Then here in the U.S., we were able to get some strong references from distribution customers who could say, ‘Digital Storage is very strong from a logistics point of view, and they are responsive, and we are happy with them,’” Garneau says.

With a sound strategy and a good bit of luck, Emtec was underway in the U.S.

“The first order we got was like $4 million,” he says. “We literally created a new category of flash keys. Now, we are challenged to keep it up because all our competitors are trying to imitate us. We have a thriving business.”

Sales figures support that observation. Two years ago, the business grew by 32 percent, last year 37 percent, and this year, Garneau budgets about 50 percent growth.

Keep the old as important as the new

If a company launches an innovative venture and the sales figures indicate that things are pretty rosy, there is still the challenge the company faces of how the new plays against the old.

“When you face a situation like this, the challenge is how do you motivate the people — all of them?” Garneau says.

“You have a group of people who are dedicated to your old business, which is declining. And at the same time, you are building a new business, which is all new and exciting, but you have to keep a balance between the two because you need the first one to provide the cash to fund the new one.

“The key challenge then, which is also ongoing, is how do you motivate everybody and not make the old people feel that they are not so important anymore versus the new guys who are building all the excitement,” he says.

Should you find yourself in this or a similar situation, communication will often make or break the situation.

“We do this through a lot of information exchange,” Garneau says. “We tend to be very open with everybody. We share the numbers. We have town meetings every quarter. We state the strategy in simple terms.

“The trick is to make sure that everybody feels they have a role to play and that they are very important in that challenge.”

This has to be reinforced all the time, Garneau says.

“I like to do a lot of walking around,” he says. “If I talk to the people in the warehouse, they have to understand how important it is for them to be quick and caring and satisfying for the customers, which they do. But everybody has a role to play. We need people to sell the old media because we have to maintain that business as long as we can.

“So it’s ongoing. Let’s communicate; let’s talk. Let’s share the information. Everybody’s important; everybody has a role to play.”

In short, you need to develop your company culture to include two extremely important aspects.

“What makes us different from others is that people care,” Garneau says. “Everybody here cares. If a customer hurts, everybody hurts. We don’t tolerate indifference. We don’t hire indifferent people; you have to be excited. You have to believe in what you do, and you’ve got to care.”

The second point is to try to be fast, not fast to the point of making mistakes but to the point, quick and responsive.

With a major retailer that didn’t know Emtec from anyone, Garneau established a 24-hour turnaround policy for communications.

“Every single thing that they asked of us, we responded within 24 hours,” he says. “They were totally surprised. They were flabbergasted. It gave us such credibility with them because they were thinking, ‘Well, gee, if they respond to our legalese that way, we can only imagine how they will service our account.’ And we really got their attention that way. We ended up doing business. We’ve been doing millions of dollars of business with them ever since.” ●

How to reach: Digital Storage Inc., (800) 232-3475 or www.digitalstorage.com

The Garneau File

Simon Garneau
President
Digital Storage Inc. and Emtec North America

Born: I was born and raised in Québec City, Canada. I am French-Canadian.

Education: I have two degrees from Université Laval in Québec City, a bachelor of arts and a bachelor of science in engineering physics.

What was your first job and what did you learn from it?

As a teenager, I pumped gas at a gas station. I realized that, in those days you had to serve the people gas. But it struck me that most people wanted to talk to you, as opposed to sitting in the car and to let you finish filling the gas tank. So it really hit me. I felt that, gee, this was an opportunity to be of service and be pleasant and listen and be curious about these people and you can have a little chat. It could be to your advantage to take the lead with people as opposed to assuming that they don’t want to talk to you.

What is the best business advice you ever received?

I will give you two that really hit me and served me well in my career. I worked for a CEO, and the big thing he taught me was that his approach was to focus on revenue first. Everybody believes that a budget is a license to spend, well, it is not. You only spend if you have the money. If the money is not in there, let’s talk revenue first.

As for the other one, I was the president of the division at National Computer Systems in Minnesota. I learned from the CEO not to feel obligated to fix every problem at once.

Who do you admire in business?

I don’t go by names; I admire attitude and style. Just to give you one example, one billionaire CEO I used to run a company for was so humble and simple had such respect for people. If he made a commitment to you, he would always honor it. That is the kind of person I respect. To me, when I give my word, I come through with it, even if you cross me. I will meet my part of the bargain. But it is this kind of honesty and commitment that I admire. I like people who commit and come through with their commitment.

What is your definition of business success?

Make your numbers, because if you don’t, you can explain and this and that but when you make your numbers, everybody is happy, you are satisfied and everybody wins. And you don’t have to explain it for too long. I remember when I applied for this job that was the point I made to the people. At the time, out of 30 years in business, I had made my numbers at least 28 times. To me that is important.

Chain store sales point to a hit from tax hike

WASHINGTON, Wed Jan 23, 2013 — A slowdown in sales growth at many big U.S. retailers suggests a clutch of tax hikes enacted this month is already leading consumers to hold back on spending, putting a brake on economic growth.

Sales growth has cooled for three straight weeks when measured from a year earlier in the Johnson Redbook Retail Sales Index, data showed on Wednesday.

Similarly, the ICSC U.S. retail chain store sales index, which is the other major weekly barometer of retail spending, has showed weakening of growth in the last two weeks.

“We can very tentatively say that these numbers look consistent with our view that the increase in taxes at the start of 2013 led to a slowdown in consumer spending,” said Daniel Silver, an economist at JPMorgan in New York.

Washington this month raised taxes on most Americans.

The brunt of the tax hike came from the expiration of a temporary payroll tax cut. That cut — a 2 percentage point reduction in a levy that funds Social Security — was put in place two years ago to help the economy, which was still smarting from the 2007-09 recession.

About 160 million workers pay this tax, and the increase will cost the average worker about $700 a year, according to the Tax Policy Center, a Washington think tank.

Congress and President Barack Obama also allowed income tax rates to rise this month for households making more than $450,000 a year, a partial repeal of tax cuts put in place under President George W. Bush. The wealthy will also pay a new tax to help fund a health insurance reform passed in 2010.

These will have a smaller impact on the wider economy because they affect fewer people. But taken together, this year’s tax hikes could subtract a full percentage point from growth, JPMorgan estimates.

Some economic data appears to be bearing out economists’ predictions.

Compared to the same week one year earlier, the Redbook index rose 1.8 percent in the week ending Jan. 19, down from 1.9 percent in the Jan. 12 week and 2.1 percent in the Jan. 5 week. Sales were up 2.9 percent in the Dec. 29 week from a year earlier.

 

How to manage and overcome the risks inherent to the retail industry

Lynn Serpico, Managing Director, Aon Risk Solutions

In some grocery stores, your smartphone uses GPS to ping you when you’re near items on your shopping list. Other retailers allow customers to order something online, and when they arrive to pick it up from the store, the item(s) is already bagged and ready to go. Others still provide customers with options of where to buy, where to pick up or have delivered, and have price guarantees in order to create a positive customer experience and resulting sales.

With the retail industry facing challenging times, savvy risk managers are helping their companies manage costs and allocate capital strategically while finding ways to stay ahead of market trends, says Lynn Serpico, managing director at Aon Risk Solutions.

“These risk managers have the opportunity to help shape the business as they manage operations and costs,” she says. “At most retailers, risk managers are responsible for mitigating — for keeping the operation efficient, making sure that the use of insurance, self-insurance and alternatives are in line with overall company objectives, and that the treatment of risk is agreed to by all internal stakeholders. At a retailer, these stakeholders can include treasury, legal, logistics, marketing, merchandising or IT.”

Smart Business spoke with Serpico about the current risks that retailers face and the best ways to mitigate them.

What is new in the retail industry with risk?

Aon compiles a retail industry analytics report annually, collected from proprietary data and client interviews, identifying the top 10 risks. Retailers say the global economic slowdown is the No. 1 risk. With consumer discretionary spending as the biggest driver of retail sales, the industry constantly battles variables that are out of its control, such as gas prices.

Second, retailers worry about damage to their reputation or brand. For any retailer, the worst possible scenario is that customers stop shopping in their stores. The third-biggest risk is a market of increasing competition, one of the biggest retail trends. How are people making their shopping decisions? What does this mean for retailers, and how can they respond? For example, how do they prepare for a situation in which a customer walks into the store, and tries something on before buying it at a lower price on their mobile device?

Other risks include:

  • Distribution or supply chain failure.
  • Regulatory and legislative changes, particularly surrounding workers’ compensation, normally the largest contributor to a retail risk manager’s total cost of risk.
  • Technology failure.
  • Failure to innovate and meet customer needs.
  • Failure to retain top talent and, therefore, manage crime, theft, fraud and employee dishonesty. With plenty of turnover, there is a need for safety training and internal loss control to ensure not only a good store experience for customers but also employee safety and that employees are behaving in ways beneficial to the company.

What risks are critical priorities to manage?

Most retailers have gotten really good at managing the more traditional risks — property, workers’ compensation and general liability. For example, they know how to get their stores running after a natural disaster and have programs to get associates back to work after an injury.

Emerging and changing risks are the new focus. These include network security, product liability for vendors, and wage and hour litigation. Network security is key, as this feeds in to a retailer’s reputation. It has customer data, employee data, financial information and, in some cases, medical data, and the risk is ever evolving because bad actors are getting craftier and losses are high profile.

Vendor/supplier contract management also is critical. A store might have products from 50 countries, so how does it control and manage contracts and litigation while understanding its exposure? Additionally, employment practices liability policies exclude wage and hour claims. However, this often drives a retailer’s exposure. Finally, retailers must continuously innovate and drive down costs so savings can be passed on to customers.

What best practices address common mistakes for retail risk managers?

As an industry, margins are thin, so retail risk managers need to carefully analyze their portfolios to determine the best use of capital. For example, should you have higher retentions on certain programs because the loss history is predictable? Or perhaps you might be buying too much insurance on other programs. Maybe there is a way to self-fund a certain amount of loss and buy excess capacity, which could reduce fixed costs. Is there an alternative that has not been considered?

If you have a loss that is not insured, have you vetted the process internally? Do you know how it will be funded? Risk managers ask these questions while working to create operational efficiencies for their companies. Asking questions helps avoid buying too much or too little insurance. Risk managers can also identify maximum capacity for loss across multiple lines of business. For instance, a $10 billion retailer may be able to absorb a penny per share of loss in a given year. However, you need to know what would happen if you have losses totaling five cents a share in a worst-case scenario year with a fire in your main distribution center, a customer death in a store and a security breach that compromises customer data. It is important to get feedback internally, and ensure that all stakeholders understand decisions being made around insurance and the effect those have on the business from a financial perspective.

Know your overall retentions and whether they are aligned with the corporate strategy. Some companies are extraordinarily risk averse, so retentions are low, while others are very comfortable managing their own risk. It is up to risk managers to know the company appetite and make decisions that align with the financial objectives. In addition, whenever there’s a loss, multiple internal stakeholders need to be involved in the process.

Lynn Serpico is a managing director and the National Retail Practice Leader at Aon Risk Solutions. Reach her at (203) 326-3464 or [email protected]

Insights Risk Management is brought to you by Aon Risk Solutions

How to manage and overcome the risks inherent to the retail industry

Lynn Serpico, Managing director, Aon Risk Solutions

Todd A. Dillon, Senior account executive, Aon Risk Solutions

In some grocery stores, your smartphone uses GPS to ping you when you’re near items on your shopping list. Other retailers allow customers to order something online, and when they arrive to pick it up from the store, the item(s) is already bagged and ready to go. Others still provide customers with options of where to buy, where to pick up or have delivered, and have price guarantees in order to create a positive customer experience and resulting sales.

With the retail industry facing challenging times, savvy risk managers are helping their companies understand how to manage costs and allocate capital strategically while finding ways to stay ahead of market trends, says Lynn Serpico, managing director at Aon Risk Solutions.

“These risk managers have the opportunity to help shape the business as they manage operations and costs,” says Serpico. “At most retailers, risk managers are responsible for mitigating — for keeping the operation efficient, making sure that the use of insurance, self-insurance and alternatives are in line with overall company objectives and that the treatment of risk is agreed to by all internal stakeholders. At a retailer, these stakeholders can include treasury, legal, logistics, marketing, merchandising or IT.

Smart Business spoke with Serpico and Todd A. Dillon, senior account executive at Aon Risk Solutions, about the current risks that retailers face and the best ways to mitigate them.

What is new in the retail industry with risk?

Aon compiles a retail industry analytics report annually, collected from proprietary data and client interviews, identifying the top 10 risks. Retailers say the global economic slowdown is the No. 1 risk. With consumer discretionary spending as the biggest driver of retail sales, the industry constantly battles variables that are out of its control, such as gas prices.

Second, retailers worry about damage to their reputation or brand. For any retailer, the worst possible scenario is that customers stop shopping in their stores. The third-biggest risk is a market of increasing competition. This is one of the biggest trends in retail. How are people making their shopping decisions? What does this mean for retailers, and how can they respond? For example, how do they prepare for a situation in which a customer walks into the store, and tries something on before buying it at a lower price on their mobile device?

Other risks include:

  • Distribution or supply chain failure
  • Regulatory and legislative changes, particularly surrounding workers’ compensation, normally the largest contributor to a retail risk manager’s total cost of risk.
  • Technology failure
  • Failure to innovate and meet customer needs
  • Failure to retain top talent and, therefore, manage crime, theft, fraud and employee dishonesty. With plenty of turnover, there is a need for safety training and internal loss control to ensure not only a good store experience for customers but also employee safety and that employees are behaving in ways beneficial to the company.

What risks are critical priorities to manage?

Most retailers have gotten really good at managing the more traditional risks — property, workers’ compensation and general liability. For example, they know how to get their stores running after a natural disaster and they have programs to get associates back to work after an injury.

Emerging and changing risks are the new focus. These include network security, products liability for vendors, and wage and hour litigation. Network security is key, as this feeds in to a retailer’s reputation. It has customer data, employee data, financial information and, in some cases, medical data, and the risk is ever evolving because bad actors are getting craftier and losses are high profile.

Vendor/supplier contract management also is critical. A store might have products from 50 countries, so how does it control and manage contracts and litigation while understanding its exposure? Additionally, employment practices liability policies exclude wage and hour claims. However, this often drives a retailer’s exposure. Finally, retailers must continuously innovate and drive down costs so savings can be passed on to customers.

What best practices address common mistakes for retail risk managers?

As an industry, margins are thin, so retail risk managers need to carefully analyze their portfolios to determine the best use of capital. For example, should you have higher retentions on certain programs because the loss history is predictable? Or perhaps you might be buying too much insurance on other programs. Maybe there is a way to self-fund a certain amount of loss and buy excess capacity, which could reduce fixed costs. Is there an alternative that has not been considered?

If you have a loss that is not insured, have you vetted the process internally? Do you know how it will be funded? Risk managers are asking these questions as they work to create operational efficiencies for their companies. Asking questions helps avoid buying too much or too little insurance. Risk managers can also identify maximum capacity for loss across multiple lines of business. For instance, a $10 billion retailer may be able to absorb a penny per share of loss in a given year. However, you need to know what would happen if you have losses totaling five cents a share in a worst-case scenario year with a fire in your main distribution center, a customer death in a store and a security breach that compromises customer data. It is important to get feedback internally and ensure that all stakeholders understand decisions being made around insurance and the effect those have on the business from a financial perspective.

Know your overall retentions and whether they are aligned with the corporate strategy. Some companies are extraordinarily risk averse, so retentions are low, while others are very comfortable managing their own risk. It is up to risk managers to know the appetite of their company and make decisions that align with the financial objectives. In addition, whenever there’s a loss, multiple internal stakeholders need to be involved in the process.

Lynn Serpico is a managing director and the National Retail Practice Leader at Aon Risk Solutions. Reach her at (203) 326-3464 or [email protected]

Todd A. Dillon is a senior account executive at Aon Risk Solutions. Reach him at (314) 854-0864 or [email protected]

Insights Risk Management is brought to you by Aon Risk Solutions

Valero may raise $3.5 billion through retail arm auction: sources

NEW YORK, Thu Sep 27, 2012 – Valero Energy Corp. is selling its retail business, which operates gas stations and convenience stores, through an auction that could fetch more than $3.5 billion and has lured the interest of private equity firms and convenience-store operators, people familiar with the matter said.

Valero’s retail business, which consists of nearly 1,000 U.S. stores and some 775 units in Canada, has around $450 million in annual earnings before interest, tax, depreciation and amortization and could sell for around 8 times EBITDA, or about $3.5 billion, two of the people said.

The U.S. refining company had said in July it would split off its gas station and convenience stores, and cited a tax-free spinoff to shareholders as one of the options.

Valero, which is being advised by Credit Suisse Group on the retail split, has sent financial information about the unit to interested parties and is expected to receive initial offers in October, those familiar with the matter said.

Several big private equity firms, including TPG Capital LP and Carlyle Group LP, are among the parties that are taking an initial look, one of the people said.

Large convenient store chains such as Alimentation Couche-Tard Inc. or 7-Eleven would also likely have some interest, two other people said.

Retailers fare well in August, sales beat estimates

WASHINGTON, Thu Aug 30, 2012 – Most retailers, including Costco Wholesale Corp. and Limited Brands Inc., posted better-than-expected sales gains at existing stores in August, in what is expected to be a healthy month as parents and students wrapped up back-to-school purchases.

Analysts expected 19 retail chains to report a 2 percent rise in August sales at stores open at least a year, or same-store sales, according to Thomson Reuters I/B/E/S. Excluding drugstores, which do not put out their numbers until next week, same-store sales are expected to rise 4.1 percent.

Same-store sales are an important measure of retailer performance because they strip out the effects from store openings and closures.

Limited, which owns the Victoria’s Secret, Pink and Bath & Body Works chains, saw same-store sales rise 8 percent, well above analysts’ average view of 4.2 percent.

Retail real estate recovery taking hold: research firm

NEW YORK, Fri Jul 6, 2012 – Vacancy rates and rents at U.S. neighborhood shopping centers improved for the second quarter in a row, further evidence the sector is moving toward recovery after years of weakness, real estate research firm Reis said on Friday.
The retail real estate sector has been among the hardest hit in commercial property. At the mercy of consumer spending, the sector has reflected the diverse pressures and changes since the housing crisis began in 2007.
The first quarter marked the first time in nearly seven years that average vacancy rates at strip malls fell, and that trend continued in the second quarter, Reis said, with the rate declining to 10.8 percent. While demand for space is weak, the firm said, new construction is even weaker.
At the same time, asking rents rose 0.2 percent, up from a gain of 0.1 percent in the first three months of the year.
“Although we still remain hesitant to claim that the market has reached stabilization, two consecutive quarters of vacancy and rent improvement is the strongest evidence to date that the sector is on the road to recovery,” Ryan Severino, Reis senior economist, said in a statement.
The firm said vacancies should continue to fall slowly through the rest of 2012, as demand outstrips construction.
Larger regional malls, meanwhile, recorded a drop in vacancies to 8.9 percent, while rents rose for the fifth quarter running. Reis said demand is stronger for malls than shopping centers, though still markedly weak.
Still, the upward trend has benefited real estate investment trusts, including high-profile mall owners like Simon Property Group Inc., General Growth Properties In.c, Macerich Co. and Taubman Centers Inc.

Retail marketers keep holiday optimism in check, survey finds

NEW YORK ― Chief marketing officers at U.S. retailers are cautious heading into the holiday season, though those at larger chains are a bit more optimistic about their prospects, according to a survey conducted by BDO USA.

Chief marketing officers expect holiday sales to rise 2.9 percent this year, a less rosy view than the 3.5 percent rise a group of CMOs predicted during the firm’s 2010 survey.

“It kind of confirmed my belief that the holiday sales were going to be tepid – positive, but not very strong,” said Doug Hart, partner in BDO’s retail and consumer product practice.

Most retailers have kept their holiday season inventory purchases about the same as last year, as they attempt to anticipate how a high unemployment rate and other economic issues will affect spending.

Retailers do not want a repeat of the 2008 holiday season, when shoppers cut back and chains that ordered too many goods had to slash prices, hitting margins, to sell them.

Sixty-five percent said their chain’s inventory purchases have stayed about the same, up from 52 percent last year.

Inventory decisions were likely impacted by the weak consumer confidence numbers over the summer, which is when most chains have to make their final calls on holiday purchases to ensure they have time for goods to arrive from overseas.

Inventory levels are expected to be up by just 0.7 percent this holiday season, down from the 2.8 percent increase that was projected in 2010.

“They’re a little bit more cautious,” said Hart, noting that CMOs often have a brighter view than executives such as chief financial officers. “The fact that these guys are certainly not optimistic is a good benchmark for where the inventory purchases are going.”

Overall, 48 percent of those surveyed anticipate their holiday season sales will stay about the same, 41 percent expect their sales to rise and 11 percent see a decline.

Among CMOs from some of the biggest retailers, just 33 percent see their sales staying about the same, while 67 percent are calling for sales at their chains to rise. No CMOs from the large chains expect their sales to fall.