You’ve made quite an investment in your store. What part of that investment will show some dividends? Strange question? Think about it for a moment. When you went into business you transformed your landlord’s raw space into your dream store. Depending on how “raw” the space was, you spend quite a bit of your capital making the store look like what was in your head.
Then, you brought in cabinets, racks, and all sorts of display props to show off your merchandise. You did a lot of publicity and hired what you hoped would be a great crew to introduce your merchandise to your customers.
All the money that you have spent on the above items are “dead dollars”. That money is gone. In reality it will never be recovered.
The only part of your invested capital that has the ability to bring a return is your inventory. Since that’s the case, you would think more retailers would be more concerned with how those inventory dollars are spent. But they lose sight of the reality of making money while they’re so busy running their stores.
Most retailers fail, not because they have ugly stores, or bad fixtures, or poor sales help, or a bad location, or from lack of advertising, but because they cannot pay their merchandise invoices. Too much of a good thing is a bad thing and if a retailer buys more than he can sell, the bills accumulate and cash flow goes south. When they turn to markdowns to raise cash, they are only bringing in enough to pay invoices, not overhead or themselves.
And what has never ceased to amaze me is that while the tool to solve this problem exists, many retailers feel they can’t be bothered because it would just be another thing for them to do or it might cost them something. So, they go forward without open to buy planning and continue on for a while on cash raised through markdowns. Obviously, this is a never ending spiral and finally they can go no longer and quit losing their entire investment. Very sad, when the tool they need is waiting for them.
A good open to buy plan will (in short order) show any retailer where their current inventory is out of balance, give them a 12 month buying plan in each department, and show them which departments are over bought or under bought. Vital information that every retailer needs, but few are using.
Retailers need to wake up and start using open to buy planning. Without doing that, the value of your store will keep heading downhill.