Evaluating 2007
Retail, like all industries, has taken a big hit this year due to economic conditions. We all have friends, family, maybe even ourselves, who are facing the toughest personal and business financial crises of their/our lives.
So how is business? When I look at customer sales numbers, I see lower sales from a year ago for most of them. But does that mean they are in worse shape than a year ago? NO! More sales does not necessarily translate into better business. I have had several clients who were in difficult positions and we turned the business around with LESS sales, not more.
Some of my clients are in worse shape, but the ones who are not have taken steps over the last year to ensure that they are retail healthy. For these clients, we lowered their sales plans and they bought less inventory. In some cases, clients who have struggled with staying within the buying budget, they really decided to do something different this year by tackling that excess inventory situation. They just decided to stay close to the budget.
Not suprisingly, it’s easy to buy if buyers have no limits. A buyer can select any items that they believe will eventually be purchased by consumers. When buyers have limits (accountability), it forces them to DECIDE among several vendors and products. I would love to have twice as many clothes as I have, but I have a limit (called one kid still in college). Therefore, I decide what I like best and live with those choices.
So why do buyers have a tough time with this practice? I wish I knew, but I believe that since buying is their business, not their lives, it is easier to spend business money with the expectation that the purchases will eventually become liquid again.
But I know that overbuying is not a one-year phenomenon. It is a terrible habit and a $50,000 overbought situation can easily become a $100,000 situation for the next year. You can do the math for future years. Most buyers have an on official “overbought limit” and the markdowns get drastic when that number is reached.
As many of my clients can tell you, it hurts when I point out that the additional $50,000 - $100,000 RARELY translates into additional sales. I have seen situations where the inventory from one year to the next is 25% higher, but sales are flat or marginally ahead of the previous year. That’s a fact that hits them in the face. It means that all of that unjustifiable buying did not get the attention of consumers. How would you feel if you spent an additional $50,000 and basically, NONE OR LITTLE of it sold. (I know, some of it sold, but some of the justifiable spending did not.)
So my suggestions is to gather the last three years of financial statements. Look at the inventory value at the end of the year for each of those three years. Look at sales and look at gross profits percents.
If you find that inventory is up significantly and sales and margins are declining, flat or marginally up, then it is time to do something about it. Remember the definition of insanity? It’s doing the same thing over and over, expecting a different result.
Pick up the phone and call me and let’s put you on a spending diet. If you are typical, you will reduce your inventory a minimum of 10% next year. If you have $100,000 in inventory, that frees up $10,000 in cash. If you are typical, you will find that your gross profits will rise 3-5 points. For every $100,000 in sales, that’s $3,000-$5,000 in the bank. Notice I did not even mention sales going up or down. That’s how you get healthy. You get the most out of the least. HAVING LESS INVENTORY MEANS FEWER MARKDOWNS.
My suggestion is to quit procrastinating and let me help you put together a plan. I review my web logs weekly and I see some of the same people coming back to my sites. They obviously like what they see, but are afraid to pick up the phone and take the step that could be the difference between success and failure. If that’s you, what are you waiting for?
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
866.32 RB101 (866.327.2101) toll-free (US)
+1 760.724.0385 direct
+1 619.723.4653 mobile
+1 760.208.4653 US Skype
+44 20 3239 9619 UK Skype
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