My Favorite Customers
It is interesting to me that some of the retailers with whom I have worked are those that you would think do not need or want any help. Other retailers view these stars as the best retailers in their markets, whether that means a geographic region or a line of business. But as I talk to these successful retailers, they let me know that what they want is an independent third party to keep financial controls on their buyer(s). They also want someone who will look at numbers and question decisions.
Statistics do not always tell the whole story, though. Sometimes, I have a buyer who goes over budget and can justify additional purchases due to specific inventory shortages. That’s okay, but my next question is “So what are you going to do to get rid of the excess that isn’t selling?”
I get two types of retail customers, those who are in good shape, but want to be better and those who are in bad shape. I have to admit that I love the challenge of the latter client.
Invariably, when we get started, I find that turn rates are nowhere near what they believe them to be. I had a client a few years ago who thought 2+ turns were normal for her store. After digging through previous balance sheets and sales numbers, it was obvious that turn rates were less than 1.0. Was this client shocked! While she was depressed, I said the good news was that there was lots of room to improve.
The first thing we did was look at operating expenses as a percentage of sales. Unfortunately, that number was higher than 50%. Therefore, doubling the cost (keystoning) was not acceptable. So we found products where price could be set at closer to 60% initial markup. Within 9 months, the entire store was close to 58%. That gave the owner some breathing room to take markdowns and still be profitable.
The second thing we did was review the departments that were not selling adequately. It turned out that one of the buyers had a passion for the largest of these departments. Despite that love affair, customers did not share the passion for the products. So we spent about a year getting rid of it. There were a few of those departments where personal tastes were matching up with performances.
So we found places where less buying was needed and a few where more buying was needed. However, the overall scenario was that LESS dollars were going to be spent than in the past. That’s how you get turn rates to increase.
It is further interesting that when this occurs (getting by with LESS inventory), sales usually do not decrease as a result. In fact, in most cases, they increase. It’s just a little simple math and logic to see why this happens. Let’s say that one store, without an open-to-buy, has 10 items for sale and the other store, with an open-to-buy, has 5 items. (For clarity, we’ll call them the bad store and the good store.) The bad store will sell a couple of them and likely does not have enough to invest to replace those items-because they still have financial resources (money) tied up in inventory. The good store probably does have enough to reinvest because they did not over invest the first time.
Typically, at the beginning of a season, they will both sell about the same. But the good store will buy some new merchandise and that will attract customers to come back and look again. The bad store will probably not have new merchandise for a much longer period of time. The bad store will have a decrease in foot traffic because there is little reason for customers to return. So sales for the good store will likely increase. The bad store will probably lose customers.
One of my favorite stories involved a seasonal business that was “relatively” closed for the winter. At the end of the season, there was usually a big sale for the locals to convert old inventory to cash. However, after one year on an open-t0-buy, they found the store lacking in enough inventory to hold the big sale! While the locals may not have liked it, the owner certainly did. That meant the store had made good profits throughout the season.
So we came up with a good idea to satisfy the locals. We came up with a “Mystery Discount” promotion. The locals could select items for purchase and then drew an envelope which held the discount percentage they would receive. The posted range was 10% to 50%. However, there were no 10% coupons!
My logic for that relates to the frustration I feel with plastic bottles of soda that have a potential prize listed in the cap. 99.9999% of the time, it tells you, “SORRY, TRY AGAIN”. It coldly points out that you lost, again. So, the feeling someone has when they do not draw the worst of the prizes (10% off) is “Hey, I’m not a loser. I got 20% off!”
It’s a great promotion that you may want to try in your own retail establishment. Everywhere that has tried this has had great results with it. By the way, it does not have to be 20% off the entire purchase. It could be off on only one item.
I hope that you have learned something in this blog. (1) It is okay to get outside help who can help make your store more profitable. (2) You can learn some new tricks from someone who has worked with a wide variety of retailers and can share new ideas with you. (3) Most importantly, that you can have great success stories by working with a consultant who can help keep you out of trouble! Most clients, after they have worked with me, believe that their money was an investment, not an expense. In making the decision to work with me, I am sure that they believed it was an expense and that it probably would be one. But that changed.
So, if you would like to become a success story, then stop procrastinating and give me a call. I review my web site hits regularly. The most popular ones are Open-to-Buy, the Mill River Plan (for golf shops), and Setting Retail Prices-The Immediate Impact. Many of you read it, but never take that step to get help. If you don’t know how to do an Open-to-Buy, then pick up the phone and call! Next year, you can be a success story!
Alan Fisher is the leading expert on inventory management in the golf industry. He has conducted numerous seminars across the US and Europe for the golf industry and has authored numerous articles on maximizing retail inventory. If you would like to know more about how you can make your retail a profitable part of your business, please contact him at any of the following:
alan.fisher@mygolfretailguru.com
+1 619.723.4653 mobile
If you enjoyed this post, make sure you subscribe to my RSS feed!