Is a shortage of cash holding you back from doing what it takes to grow your business?  For many independent retailers this is their main problem.  By the time they have sunk the majority of their capital into leasehold improvements, furniture and fixtures, and inventory, there’s not much left to keep building the store’s business.

The money invested in leasehold improvements, furniture and fixtures is gone.  There is no recovery of these dollars.  The dollars you have spent to fix up someone else’s building will never be recovered.  The expensive store fixtures you purchased to give your store just the look you wanted are essentially worthless.  (Just check the market on used fixtures if you want to get depressed.)

There is a bright side to all of this, because the money you spent on inventory can keep you afloat if properly controlled.  The problem is that most retailers are over-zealous about the need to keep huge inventories.  “We don’t want to miss a sale, do we?”  This fact creates a problem that spells financial disaster for most small to medium sized retailers.  More inventory does not equal more sales.  More customers will equal more sales.

Unless you are very rich, and most retailers aren’t, you need to perpetuate your business with your inventory.  Every time you sell an item, a portion goes to the manufacturer, there is a contribution to overhead, and some profit is also garnered.  Of course, this only happens when items are sold at full price.  If marked down, depending on the amount of the markdown, profit and overhead contribution may be lost.  Without profit, there is no reason to be in business.  Without the contribution to overhead, continuing may not be an option.

To attract more customers, you must promote.  Promoting is expensive, and the choices are many.  For most retailers, the promotional dollars must come from the excess inventory.  This buried treasure contains your future success.  The “map” to the treasure is “open-to-buy” planning.  Open-to-buy will enable any retailer to develop an inventory and buying plan based on anticipated sales and desired turnover rates.  Upon setting up your open-to-buy plan, you will see where your inventory and future orders are out of balance. This information will help you develop a sales and promotional plan to bring yourself into line.  These excess dollars will not go back into inventory, but will become available for promotion, staffing, better displays, etc.

Unlike buried treasure, excess inventory does not increase in value.  To the contrary, it is depreciating from the moment it arrives in your store.  This is another important reason for having open-to-buy.  Keeping your inventory fresh and turning is the key to successful retailing.  Only open-to-buy planning will insure that you buy the right quantities and keep your inventories lean, balanced and providing you with the funds to constantly promote and increase your customer base and your sales.  With open-to-buy you will build a treasure, not bury one.

 


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