Buy now! Buy more! If you do, you can get a discount. Or we’ll give you dating. Or we’ll structure a deal you can’t refuse. Yes, your products will come cheaper or with better payment terms, but are these “good deals” really good for your bottom line?
Your goal as a retailer is to have the right amount of merchandise on your floor at the beginning of each month to support the sales you expect at the turn rates you desire. If you have less, you miss sales. If you have more, you suffer markdowns and excess invoices.
But when you go to market, so many products look good and then there is the added pressure from the vendors and reps to buy more. Buy more because you won’t be able to get it later. Buy more because your competitors are buying it. Buy more and you’ll get an advertising allowance. Buy more and you’ll get a discount. Buy more and you won’t have to pay for it for an extra 90 days or 120 days.
Now, the problem is not in the discounts, allowances or dating. The problem is when you buy MORE! Invariably you will be buying more than you actually need and too much of a good thing is a bad thing. As soon as you start taking markdowns on the excess you bought because of the discounts or dating, your profit on the entire buy pretty much goes away. Who wins when you are influenced by these “special” terms: the vendor. They have built these discounts into their margins and just turn around and sell the invoices to their factors. They want you to buy more so they will have more cash coming in so they can grow.
But when you operate this way, you will always be on the short end of the stick and chasing your tail for cash. And that means markdowns and that means a negative cash flow.
You need to operate your store with open to buy planning so you always know how much merchandise you want to have in each category on the 1st of each month for the next 12 months based on your anticipated sales and desired turn rates. Once you have this information, you are no longer susceptible to the “deals” to make you buy more. You know how much to buy and if you stick with your plan, you’ll come out on top. If your vendors are offering discounts, ask for the discount on your planned buy. Push back, but don’t buy more. Ask for everything you can get, but don’t buy more.
Finally, if you plan properly and buy accordingly, you will always generate enough cash to pay your vendors, your overhead and yourself. Dating is a bit of a trap since it lulls retailers into thinking they have the merchandise for free for a period of time and many use the sales dollars for other payables. When the invoice does come due, the needed funds have been spent elsewhere and markdowns need to be taken to raise cash to pay the bills. If you do get dating, make sure it comes with “anticipation” (a discount for paying early) and pay the bill in a timely manner. If the dating is to cover you for taking the merchandise in earlier than you need it, keep the merchandise back until your open to buy plan calls for it, bring it onto the sales floor and put the appropriate amount of the invoice in line for payment 30 days later.
If you do these simple things, your cash flow will always be positive and your markdowns minimal. But before you will know how much to buy, you must have open to buy. MYOTBPLAN.COM will insure that your buying is always on target and your bank account is always growing. And that makes you a winner at the retail game.